There are different factors that can get in the way of a solid business idea turning into a highly successful startup. One such common symptom is the lack of funding - and whether it is the idea itself of struggling financially which intimidates entrepreneurs and prevents them from taking the risk to start with, or whether it is due to previous failed attempts at raising the necessary capital to build a small business from the ground up, this challenge can be crippling to many who are not equipped with the necessary resources to prevail.

Luckily, there are a wide variety of options out there looking to fund your business! The key is to know exactly what it is you are looking for, what the criteria is for eligibility, what the pros and cons are for each of these options and what price you have to pay in order to obtain the funds. This will allow you to make an informed decision when selecting your new source of capital for your small or medium business.

Loans Spelled Out In Scrabble Letters

While loans from brick-and-mortar banks might be more challenging to get approved for, these are still a viable option if you have a good credit standing and meet their criteria, as they will provide larger sums and charge you less interest. If you find that being approved by traditional banks is not working out for you, note that credit unions are more likely to accept your loan requests and can be lenient with their application requirements.

As the different sources with their unique attributes can get slightly confusing, I have summarized them for you below in a basic compilation of the different loan solutions out there for smaller businesses.

TRADITIONAL BANKS

Bank of America Building

If you require a large amount of money and are looking to pay the lowest possible interest rate, then your good ole’ bank is the way to go. They also have the option of providing longer repayment periods, should you require them. Qualifying for these loans, however, is the trickier part of the equation.

The application process itself can appear intimidating with all of the paperwork involved, and an additional challenge is when the loan requires a lot of collateral, making it more difficult to secure. After successfully qualifying, it could be a number of months before any money is at your disposal, so be sure you can afford to wait.

Requirements: good credit score, long and stable financial history, business plan and collateral

Pros: Larger loan amounts, flexible terms (more time to pay back), lower interest rates

Cons: Slower approval process, lower approval rate, strict eligibility criteria


SBA

Business Loans - SBA Business Loan Meeting

The average U.S. Small Business Administration microloan is for about $13,000. The SBA has a microloan program that offers loans up to $50,000 for small businesses and some nonprofits. Check out the provider list of SBA loans here.

Out of the different SBA programs available, the most popular one is the 7(a) Guaranty Loan Program. This loan may allow for lower fees and flexible repay terms compared to non-SBA loans, but it is a difficult loan to receive and may require collateral in the form of physical assets.

If you qualify for an SBA loan, it is important to keep in mind that the process could potentially take even longer than the traditional bank loan and have just as much if not more paperwork, as you are dealing with government officials.


Requirements: good credit score, long and stable financial history, resume, business plan and some collateral

Pros: Larger loan amounts, covers start-up costs for your business, expands cash flow, accepts high-risk

Cons: Longest approval process, lower approval rate, strict eligibility criteria

Note: The SBA merely acts as middleman between you and a lending partner of theirs, they do not actually provide the funds themselves. They do, however, provide government backing in order to be a viable option to higher risk SMBs.

 

CREDIT UNIONS

Credit Card to a Banker

While providing similar services to those provided by traditional banks, credit unions are nonprofit financial co-ops, who pay back their earnings to members through better savings rates and lower rates for loans as opposed to paying only stockholders the way banks do

Requirements: decent credit score, must become a credit union member, business plan, collateral

Pros: Still offers a relatively large sum, privately owned, more personal and relationship-oriented, higher rate of approval

Cons: Slow approval process, relatively strict criteria, lower sums than banks, must become a member

 

ONLINE LOANS & ALTERNATIVE LENDERS

Bad Credit We Can Help Banner on Red Barn House

Requirements: application form, a few months of financial history and records, a few days for processing

Term Loans -

Wallet Locked By External Device

This type of loan is best if your business requires a lump sum of money and will be able to repay it over a fixed period of time. For more established small businesses looking to invest more funds in long-term growth, term loans are ideal as they can be paid over a longer period of time than usual.

Pros: Longer repay period, larger available sums, lower rates than lines of credit

Cons: May require collateral, Not as flexible

Examples:
Lending Club - lenient requirements compared to banks, but required minimum of two years in business
Ondeck - ideal for urgent funds that are simple to obtain, but rates may be high
Funding Circle - require good credit standing, lower rates, perfect for investment in long-term growth

Lines of Credit -

Man Climbing Upwards On A Line Graph

If the limitations accompanying term loans are inconvenient, a more flexible approach for your financing is available in the form of a line of credit. This is also an ideal choice for short-term expenses, as opposed to long-term growth. Lines of credit allow you to draw funds up to a specified amount based on your own needs, and require you to pay interest only on the cash you’ve borrowed.

Pros: Flexibility

Cons: Higher APR

Examples:
BlueVine - Offers both lines of credit and invoice factoring services
Kabbage - not strict on application criteria, but can be pricey. Good for situations where money is urgently needed

Invoice Factoring -

This method lets you borrow against unpaid invoices from your customers, so that you can get cash right away, when you need it most. The purpose of Invoice factoring is to help cover any necessary expenses when cash-flow gaps occur, while you are still waiting for customers to pay you. If your businesses does not have invoices, which are typically acquired by B2B types of businesses that sell goods to other companies, then you will most likely not opt for this type of borrowing.

Cons: Typically pricier than other online lenders

Examples:
BlueVine - Used mostly to deal with gaps in cash flow or unpaid invoices. Requires a strong and proven client base
Fundbox - Good for those who seek to avoid a credit check. Have restricted compatibility with online accounting systems

Peer-to-Peer (P2P) -

 Money Bag Tree Representing A P2P Loan Network

Also called “Social Lending”, this type of transaction is when individuals borrow or lend money for the purpose of debt financing, entirely forgoing the use of banks or financial institutions as a middleman. This is typically done through online services that enable potential matches between borrowers and lenders.

Pros: Flexible requirements compared to banks, easily accessible

Cons: Time consuming, Riskier than transactions with an intermediary, higher interest paid by borrowers

Examples:
Upstart - a P2P venture created by past Google employees which is ideal for recent grads or those looking for loans without much of a credit history.
Lending Club - World’s largest lending platform - offers great rates for those with good credit.

Direct Lenders - 

Two Young Business People Shaking Hands On A Deal

Another type of loan which functions without an intermediary such as an investment bank, direct lending is a type of corporate debt provision in which lenders provide loans, typically for small or medium enterprises. Direct Lenders tend to be well-off individuals or asset management firms.

Pros: Lower rates, short approval time, easy access

Cons: Lower approval rates, bound by contract regardless of platform

Examples:
Earnest - this lander has a different, merit-based approach, and different view of personal lending and credit.
LendUp - appropriate for emergency situations, this online direct lender can provide small amounts of money, short-term through unsecured loans for dire situations.