Most small business owners are always searching for ways to improve their business, but it may be more difficult now, thanks largely to higher interest rates, especially since improvements typically require additional capital. That’s true whether your improvements include hiring more employees, upgrading your equipment, or expanding in other ways. Many financing options are available for these needs, so below, we’ve provided a comprehensive guide on how to finance small business growth.
12 Ways to Finance Small Business Growth
Some business owners might seek term loans from a bank, whereas others might favor the backing of friends and relatives. Take a look at 12 of the most popular options available to you, and choose the one that best meets your needs and supports your business strategy.
1. Take out bank loans
Traditional bank loans usually offer long-term financing with generous repayment periods and competitive interest rates. Additionally, banks typically won’t interfere with your everyday business operations, so bank loans may help you finance your business with minimal restrictions.
However, most banks set high eligibility standards for their loans. That’s because banks are notoriously risk-averse in pretty much all their affairs, including lending. Additionally, bank loan applications may be considerably longer and more tedious than those for other types of loans.
The solution is often to work with a company that may be able to connect you with bank loans – or, better yet, Small Business Administration (SBA) loans. These companies may speed up the process and introduce a human element that’s missing otherwise. SmartBiz Bank® is a great example: It provides you with hands-on guidance and helps you easily compare loans. Whether you’re seeking bank loans or SBA alternatives, SmartBiz Bank is there with you at every step.
It’s also important to consider how interest rates work. Some loans have fixed rates, which means that the interest stays the same for the life of the loan. Conversely, variable-rate loans change based on several factors. Currently, volatility within the Federal Reserve’s decision-making processes has made variable-rate loans even more difficult for small business owners. While they have their place in the business world, monthly repayment obligations that may change with virtually no notice may scare some business owners.
2. “Bootstrap” your business
“Bootstrapping” simply refers to when you use your own money,or the money your business earns,to fund your business. Since bootstrapping almost wholly removes external funding from the equation, you don’t have to waste time looking for investors or loans. Additionally, bootstrapping allows you to keep complete control over how you grow your business since you’re not beholden to anyone else. However, bootstrapping may not provide the amount of money that you’ll need for certain large purchases.
Advancements in artificial intelligence (AI) have made bootstrapping easier than it used to be. By investing in AI automation, you may be able to free up time to focus on tasks that significantly impact your company’s finances. Automating things like billing, email responses, and other repetitive tasks may allow you to bootstrap your business by shifting your focus to high-impact tasks.
3. SBA loans
SBA loans are government-backed funding options that cater to the financial needs of small business owners. While the U.S. Small Business Administration oversees them, the agency doesn’t provide the funds. Instead, the SBA empowers lending institutions to usually extend more favorable loan amounts and terms to small business owners. As a result, many more borrowers may gain access to small business loans with favorable rates and lengthy repayment periods. SBA 7(a) loans, which are often referred to as the “gold standard” in commercial lending, are currently capped at $5 million, creating a path for business owners to access a large amount of capital.
4. Get money from friends and family
As the name suggests, friends and family financing is when the people in your life help you finance a business venture. Funding your business in this manner may offer similar benefits to bootstrapping – for example, the lack of investor involvement in business decisions. However, that condition is dependent on your relationship with your loved ones. Maybe your uncle wants a say in how you run things in exchange for the money you need for your second location.
Friends and family funding has other potential disadvantages. For starters, it’s often tricky going into business with a family member because their financial health depends on your success. Additionally, the people in your life might not currently have enough money for your needs.
It’s important to make sure that you differentiate between gifts and loans when accepting capital from friends and family members. Gifts are never considered taxable income. While loan proceeds aren’t taxed, there are usually tax implications for interest and principal repayments.
The giver of the gift must file Form 709 if they give more than the annual exclusion limit.
5. Open a business line of credit
A business line of credit is like a credit card but on a larger – and often more affordable – scale. The lender sets a credit limit that you may borrow against for any possible business-related expense, but you don’t have to use the whole amount. You won’t pay any fees or interest on any funds you don’t use, so business credit lines may be more affordable than other funding routes. However, they may be better for short-term cash-flow needs instead of long-term capital.
Many small business owners use credit lines to stimulate cash flow during slower cycles. At these times, credit lines may help employers pay employees and purchase equipment without going in the red. Additionally, reliably paying off credit lines may build a trustworthy credit history that helps you qualify for financing in the future. But if you miss a payment, you’ll pay high fees, and your interest rate will likely be high even if you pay on time.
The interest rate that your line of credit starts with depends on multiple factors, including lender policies and your creditworthiness. For example, SmartBiz Bank bases your monthly repayment obligations on how much of your LOC you actually use, and your interest rate.
6. Work with angel investors
Angel investors are individuals who invest large amounts of money into small businesses (usually startups) to help them grow. In doing so, they earn equity in your company. That means they earn a stake in your company, giving them a certain amount of say over your operations.
Additionally, in most cases, angel investors won’t demand their money back if your business fails. However, if you want full control over how your business runs, an angel investor might not be suitable for your funding.
In the past few years, many angel investors have altered their approach to business. Instead of pursuing growth at all costs, they have started focusing primarily on profitability. Depending on your business’s history, this may make it harder to bring in a qualified angel investor. However, for businesses that are experiencing a significant profitability boost, this is still a tried-and-true method of getting funding.
7. Crowdfund your company
Not all crowdfunding works the same way, and understanding the distinction is important when evaluating financing options for business growth. Equity crowdfunding platforms such as Wefunder® and Republic® allow businesses to raise capital from investors in exchange for ownership shares or other financial interests in the company. Investors participate with the expectation that the business will grow in value over time.
Reward-based crowdfunding platforms such as Kickstarter® and Indiegogo® operate differently. Instead of giving up equity, businesses typically offer products, perks, early access, or exclusive rewards to backers who contribute funds. These campaigns are often used to validate product demand, generate pre-orders, or build brand awareness before a full launch.
8. Get a business credit card
Business credit cards function similarly to lines of credit, though in some cases, credit lines become inaccessible, and that's not true of credit cards. While you might use business credit cards for just about anything, their credit limits tend to be lower than lines of credit. However, they often offer interest-free introductory periods and valuable reward programs.
Credit cards typically have high APRs, which means you should use them wisely. Much like a line of credit, a credit card is best suited for short-term investments instead of long-term growth initiatives.
Depending on the credit card that you choose, you may get access to some rewards. If you choose to use these reward programs, it’s crucial to match your spending to the permitted categories outlined in the company’s reward program.
9. Obtain funding from a venture capitalist
Venture capitalists are individuals or companies that invest large sums of money into small businesses to get more significant returns if the business succeeds. While the extra capital may help you grow your business, the investor likely will insist on obtaining a significant stake in your business. If you’re willing to lose some control over your company, there’s an established process for getting venture capital:
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Find an investor. Research reputable venture capitalist firms to find interested, suitable backers.
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Share your business plan. Present your business plan to the potential investor so they have a chance to determine if funding you is worth the risk.
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Go through due diligence review. The investor will continue to review your company from top to bottom, including your financial statements such as your balance sheets and income statements.
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Show a clear path to profitability. Venture capitalists want to see a clear path to profitability. While growth projections may help entice a venture capitalist, they’ll typically only move forward if there’s a clearly defined path to them recovering their initial investment plus interest.
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Work out terms. If the potential backer is satisfied with what they see, you may work out the terms and conditions of their investment.
10. Seek equipment financing
Equipment financing is a loan plan offered specifically for equipment expenses. Equipment loans are collateralized, meaning what you purchase with the lender's funds becomes collateral if you can’t repay the loan. However, you generally do not have to put up any personal assets as additional security.
11. Pursue equity financing
Equity financing is the sale of shares in your business to an investor in return for usable capital. It usually offers a fast influx of money without any debt, and your funds immediately go directly to growing your company. However, any time someone else buys shares in your company, they’ll likely get some control over your operations. That takes you out of the driver’s seat to an extent, which isn’t ideal if you want to be the guiding light for your business.
12. Merchant cash advances
Merchant cash advances (MCAs) provide businesses with up-front capital in exchange for a percentage of future sales or receivables. While they may offer fast access to funding, they are often among the most expensive forms of business financing available. Some MCAs carry effective annualized costs that exceed 100% or even 200%, especially when repayment occurs rapidly through daily or weekly withdrawals.
You should also be aware that merchant cash advances have faced increased scrutiny from regulators and state governments in recent years because of concerns around transparency, aggressive collection practices, and confusing repayment terms. While MCAs may help businesses address short-term cash flow needs, they should generally be approached cautiously and evaluated carefully against other financing options first.
Final thoughts
There are many financing options available for small business owners, and each one has its unique advantages and disadvantages. Choosing the right funding opportunity for your business isn’t just about picking the one with the highest or quickest payout. Instead, it’s about selecting the loan plan that helps your business thrive for as long as possible.
If you’re ready to obtain funding for your business, SmartBiz Bank may be able to help with an SBA loan or another financing opportunity. Find out if you pre-qualify today.
FAQs
What are the most accessible financing options for a small business that is still in its early stages with limited credit history?
Early-stage businesses with limited credit history often pursue financing options that place less emphasis on long operating histories or strong business credit profiles. Common examples include business credit cards, microloans, equipment financing, crowdfunding, grants, or loans backed by personal guarantees. Some startups also seek funding from friends and family or angel investors.
How do you determine which type of financing — debt, equity, or alternative — is the best fit for your specific growth goals?
Choosing the right financing depends on how quickly the business needs capital, how the funds will be used, and how much financial risk the business may comfortably manage. Debt financing allows owners to retain control but requires repayment with interest while equity financing provides capital in exchange for ownership stakes. Alternative financing options may offer flexibility or faster approvals but sometimes come with higher costs. Businesses should evaluate repayment capacity, long-term goals, and operational stability before selecting a financing strategy.
What are the key differences between a small business loan and a business line of credit, and when should you choose one over the other?
A small business loan typically provides a lump sum that is repaid over a fixed term with scheduled payments. A business line of credit works more like revolving access to funds, allowing businesses to borrow only what they need up to a set limit. Loans are often better suited for large, planned expenses such as expansion projects or equipment purchases while lines of credit are commonly used for working capital and short-term cash flow management. The right choice depends on whether the business needs ongoing flexibility or structured long-term financing.
How does seeking investor funding or equity financing impact your long-term control and ownership of the business?
Equity financing allows businesses to raise capital without taking on traditional debt, but it typically requires giving investors partial ownership in the company. Depending on the investment structure, outside investors may also gain voting rights, influence over strategic decisions, or seats on the board. This may provide valuable expertise and growth support, but it may reduce the founder’s long-term control over the business. Business owners should carefully evaluate ownership dilution and governance implications before pursuing equity financing.
What are the risks of relying too heavily on a single financing method, and how can small business owners diversify their funding sources?
Relying too heavily on one financing source may create financial vulnerability if terms change, credit availability tightens, or repayment obligations become difficult to manage. For example, excessive short-term debt may strain cash flow while depending entirely on investor funding could create ownership dilution concerns. Diversifying financing sources may include combining loans, lines of credit, retained earnings, grants, or equity funding strategically. A balanced financing approach may improve flexibility and reduce financial risk over time.
How do you prepare your business financially and documentarily to qualify for the best available financing options?
Businesses might be able to improve financing opportunities by maintaining organized financial records, monitoring cash flow closely, and building strong credit profiles. Common lender requirements include tax returns, profit and loss statements, balance sheets, bank statements, and business formation documents. Preparing accurate financial projections and clearly explaining how funds will be used may also strengthen applications. Strong preparation demonstrates financial responsibility and may improve both approval odds and financing terms.
