Best Small-Business Funding Options 2022

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Businesses live and die based on their funding. With adequate funding, you can expand your business, hire new employees, increase your inventory, and boost sales. Without adequate funding, the opposite tends to happen.

The good news? Business owners have plenty of financing options available to them—if they know where to look.

Loans (like the ones offered by Lendio) tend to work best for most businesses, especially if you have good credit. But in this article, we’ll discuss the five best funding options for small businesses. We’ll take you through the pros and cons of each and help you choose the right type of loan or other type of business funding for you. Read on to find the best funding option for your business.

And if you're brand new to business? Discover ways to self-finance your business if you are not yet qualified for better financing options.


Our top-rated lender: Lendio

Lendio partners with over 75 lenders, which improves your odds and efficiency to get the funding you need.

Qualifications:

Money Approach

$50k in revenue

Calendar Approach

6 mos. in business

Analysis Approach

560 credit score


Compare the best small-business funding options

Funding type
Must be repaid?
Requires giving up equity?
Typical odds of getting funding
Funding speed
Loans
Icon Yes  DarkYes
Icon No  DarkNo
HighFast
Grants
Icon No  DarkNo
Icon No  DarkNo
LowSlow
Crowdfunding
Varies
Varies
ModerateSlow
Personal assets
Icon No  DarkNo
Icon No  DarkNo
N/AFast
Angel investors
Icon No  DarkNo
Icon Yes  DarkYes
LowSlow

1. Loans: Best for good credit

Best for good credit
Loans
  • pro
    Interest and fees vary by loan and lender
  • pro
    Applications accepted at any time
  • pro
    Must meet credit, revenue, and business age requirements

Many small-business owners think of “funding” and “loans” as synonymous. But that’s actually not true (loans are just one of the five forms in this article)—though loans have developed a reputation as a dependable, traditional way to fund your business. After all, you can apply for them anytime, and many kinds of businesses can qualify.

Of course, that doesn’t make them the right choice for everyone. Loans, whether personal or business, tend to work best for small-business owners who have these resources:

  1. A good personal credit score
  2. A business with one year or more of history
  3. Solid revenue

These applicants will get the best business loans or other kinds of financing (such as personal loans). That means low interest rates (well below 10%) and long repayment terms.

Generally speaking, that means you’ll be looking at loans like these:

  • Term loans give you a lump sum upfront, and then you repay the loan plus interest over time. They can be used to cover all sorts of large, planned expenses.
  • SBA loans are term loans backed by the U.S. Small Business Administration. A few different types of SBA loans exist, but they should all get you low interest rates, low down payments, and long terms.
  • Lines of credit give you quick access to funds, making them great for cash flow issues. As a revolving kind of credit, you pay interest on only the money you use, and you get continual access to funds rather than a lump sum upfront.
  • Credit cards offer another form of revolving credit. Unlike lines of credit, business credit cards tend to work better for small, incidental expenses, like covering a team lunch or new business cards.

If you don’t have good credit, you don’t need to despair just yet—you’ve still got options. These types of loans work best for people who have bad credit or who otherwise don’t meet business loan requirements.

Lenders offer quite a few types of business loans for bad credit, including short-term loans, merchant cash advances, and invoice factoring. But these kinds of financing won’t get you the low interest rates and long terms that make loans great. So think carefully before you decide to go this route with a bad credit score.

If you do have a decent credit score, though, loans can be a great way to fund your business.

Pros
pro Available at any time
pro Fast funding times
pro Large funding amounts available
Cons
con Borrower requirements you have to meet
con Potentially high interest and fees
Apply for a Loanon Lendio's marketplace

Avant: Our top pick for
brand-new businesses

Avant’s secure personal loan options and next-day funding make it our top pick for brand new businesses not yet qualified for business loans.

Qualifications:

Calendar Approach

No min. time in biz

Money Approach

No min. revenue

Analysis Approach

550+ credit score


2. Grants: Best for niche companies

Grants
Grants
  • pro
    No cost in most cases
  • pro
    Applications accepted during specific cycles
  • pro
    Must meet grant eligibility requirements

Grants give you free money—yes, we said free. Sounds great, right? Well, before you get too excited, here are two caveats you should know:

First, everybody wants grants, but few people get them. Expect to have plenty of competition.

Second, getting a grant takes a while—it could possibly take months to jump through all the hoops before getting funding. Business grants often have detailed application processes that may include writing essays, making videos, or participating in interviews. Add in the fact that many grants accept applications only during a brief annual window, and you’ve got yourself a long wait.

Now that we’ve rained on your grant parade, back to the good stuff. Grants give you free money that you don’t have to repay. Basically, it’s yours to use as long as you use it in line with the grant’s terms and conditions. For example, a grant earmarked for equipment cannot be used on real estate.

Plus, grants often go to disadvantaged groups that have a harder time getting traditional loans. For example, many grants exist specifically for women-owned, minority-owned, and veteran-owned businesses. To be clear, these grants go exclusively to members of their specified groups; they don’t operate like loans for women entrepreneurs, which cannot be exclusive for legal reasons.

Likewise, you’ll find grants specifically for rural businesses, businesses with fewer than five employees, businesses that involve animals, and plenty of other specific groups.

Sound interesting? Then here are a few resources to help you find the right grant for your business:

Free money sounds great, and you should absolutely pursue grants as a form of funding. Just don’t count on grants as your sole option for funding your business. The stiff competition and long wait times make grants an unreliable form of financing. Use them as a supplement to other sources of money rather than as a replacement.

Pros
pro No need to repay grant
pro No credit requirements
pro Few revenue or other typical borrower requirements
Cons
con Irregular application cycles
con Stiff competition
con Generally small funding amounts

3. Crowdfunding: Best for innovative startups

Crowdfunding
Crowdfunding
  • pro
    Platform fees vary by crowdfunding site
  • pro
    New campaigns accepted at any time
  • pro
    No requirements for many platforms

When you turn to crowdfunding, the lenders come to you. Well—sort of. You’ll have to make a great pitch explaining your product and post it on one of the best crowdfunding sites, and then you’ll have to do some work to make sure people even see it.

But after you do all that, the lenders come to you! You harness the power of public opinion—or at least the power of public pockets—to get funding for your project.

Crowdfunding is unique in that it often funds things that traditional lenders would shy away from. Plus, it provides the potential to get early feedback from your audience since people get to see your product before it even hits the market.

Generally, people give money in exchange for tiered rewards you offer (e.g., someone donates $20 to get a t-shirt, $30 to get a t-shirt plus early access, or $1 million to eat dinner with Bono at the wildlife preserve of their choice). But some crowdfunding sites operate on pure donations, or money, in exchange for equity.

Compare the best crowdfunding sites

Site
Campaign type
Campaign/funding fees*
Payment processing fees
Get started

Reward

5% of the total funds raised

3% + $0.20 per pledge of $10+, 5% + $0.05 per pledge under $10

Reward

5% of the total funds raised

Varies depending on payment processor; 3-5%

Reward, donation

0%

2.9% + $0.30 per transaction

Equity

7.5% of total funds raised

N/A

Reward, equity

$179.00/mo. subscription3.5% + $0.30 per transaction

Data as of 8/29/22. Offers and availability may vary by location and are subject to change.
*Fees listed for US-based campaigns.

Crowdfunding tends to work best for product-based businesses or creative people with new products they want to bring to market. So if you’ve got a new board game or a line of snack foods you think the public would love, give crowdfunding a try. (Service-based businesses generally don’t do as well.)

That being said, making money with crowdfunding is hard. Again, you’ll have to spend time and money making a solid pitch for your project, which generally means lots of writing plus a professional video. As mentioned before, you’ll have to come up with reasonable rewards that will entice people to donate. Then you’ve got to do enough marketing to make sure people even see your campaign among the thousands of others.

Keep in mind that crowdfunding sites have fees that will affect how much you actually get paid. Do your research on the exact fees before setting up your campaign. You may also have to pay taxes on the money you raise, so make sure you understand the relevant tax code (before spending it all) as well.

The potential payoff from crowdfunding can be huge, but don’t fool yourself into thinking it’s easier than other forms of funding. Yes, someone funded an emoji Moby Dick translation. But no, that doesn’t mean everything gets funded.

Pros
pro Little barrier to entry
pro Ability to gain customers while crowdfunding
pro No repayment requirements (in most cases)
Cons
con High amount of effort to successfully campaign
con Platform fees
con Suitability for only some businesses
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4. Personal assets: Best for keeping control

Personal assets
Personal assets
  • pro
    Fees vary by asset type
  • pro
    Available at any time
  • pro
    No credit, revenue, or business age requirements

Most small businesses get funding from personal savings and credit—58% of startups fund this way according to an infographic from Fundable.1

We know personal assets sound less exciting than crowdfunding or angel investors. Still, self-funding your business has an important upside: funding your business with your savings and/or retirement accounts (such as a self-directed IRA) saves you from taking on a massive amount of risky debt or from losing equity. In other words, you don’t have to worry about someone else taking control of your business or its assets.​

Likewise, you don’t have to worry about interest rates, APRs, or even qualifying for credit. In the worst-case scenario, you run out of savings—but at least you don’t owe money to someone else. Plus, you’ll save the time and energy that goes towards finding funding. No wonder most business owners turn to their personal assets.

Aside from your own personal assets, you might find family and friends willing to support your business. Of course, this does carry some personal risk. For example, if family and friends don’t approve of how you spend their money, you could find yourself at some awkward Thanksgiving dinners—but those closest to you will often take a chance on you when a bank won’t.

Whether you self-fund or get help from family, don’t feel like you have to throw away anyone’s life savings to finance your business. Fundable reports that the average business owner invests $48,000 into their business, but don’t panic if you can’t invest that much.1 Many businesses can be started for under $1,000, like these low-cost business ideas.

If you decide to fund your business with personal assets, you can always seek outside funding later. Who knows? You might even attract our final funding option.

Pros
pro No repayment
pro No borrower requirements
pro No loss of control
Cons
con Inaccessibility for some entrepreneurs
con Typically lower funding amounts
con Risk to personal assets

5. Angel investors: Best for risky ventures

Angel investors
Angel investors
  • pro
    No fees
  • pro
    Pitches accepted at any time
  • pro
    Business requirements vary by investor

Since the rise of the TV show Shark Tank, everyone wants an investor to boost their business. In other words, they want an angel investor.

Angel investors invest their own money into your business, generally in exchange for a percentage of shares in your company. That means there’s no loan to repay; instead, your angel investor takes a share of company profits. Angel investors often invest in businesses that traditional lenders might deem too risky, and they commonly offer hands-off mentorship rather than insisting on a board seat.

Pretty angelic, right?

If giving up equity to an angel investor sounds too hard, we understand. Still, in those early days of your business when cash flow doesn’t quite flow, exchanging equity for cash can make a world of difference. There’s a reason Shark Tank has become so popular.

Money
Debt financing vs. equity financing

Loans and lines of credit are considered debt financing—where someone gives you money and you’re in debt to them until you repay those funds (usually plus interest). Angel investors (and venture capitalists) fall under equity financing. Someone gives you money in exchange for company shares—you don’t have to repay anything.

Technically speaking, an angel investor must be an accredited investor. According to the U.S. Securities and Exchange Commission, angel investors need a net worth of over $1 million, or an income of over $200,000 for the past two years.2

Practically speaking, you could also count family and friends who invest in your business as angel investors. Remember that Fundable infographic? Family and friends make up the second-highest source of small-business financing.1 Given that family and friends invest in riskier schemes with beneficial terms for you, we think they qualify as angelic too.

But if you want a true angel investor, you can always go on Shark Tank. If TV appearances aren’t your thing, you can also pitch to angel investing clubs. That’s right—you can find entire clubs of angels looking for their next investment.

Oh, and be careful not to mix up angel investors and venture capitalists. Venture capital firms tend to invest more, but they invest in more established businesses, take more equity, and are generally more interested in turning a profit than mentoring.

So stick with angel investors―whether they’re accredited or simply your friends.

Pros
pro No repayment required
pro Potentially large investments
pro Business expertise and guidance from your investor
Cons
con Loss of equity and control
con Potentially long timeline to find investors
con Amount of effort required to successfully find and pitch investors

The takeaway

We know as well as you do that funding can make or break your business. Fortunately, with several different types of funding available to you, you’re sure to find a financing option that works for you.

If you’ve got good credit, loans offer a highly accessible and fairly affordable way to get funds. Grants and crowdfunding can both give you funds you don’t have to repay, though grant applications and crowdfunding campaigns mean plenty of competition. Personal assets are the cheapest, easiest way to fund your business (if you have them). And angel investors can give you another way to get debt-free funding―if you don’t mind losing some control.

Happy funding!

Think a loan or other traditional financing might be the right fit for you? Learn more about how to choose a business loan.

Related reading

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Sources
1. Fundable, “Startup Funding Infographic.” Accessed August 29, 2022.
2. U.S. Securities and Exchange Commission, “Bulletin: Accredited Investors.” Accessed August 29, 2022.

Chloe Goodshore
Written by
Chloe Goodshore
Chloe covers business financing and loans for Business.org. She has worked with many small businesses over the past 10 years, from video game stores to law firms. Those years watching frustrated business owners try to sift through their many options gave her a passion for breaking down complex business topics. She wants to help business owners spend less time agonizing over their businesses so they can spend more time running them.
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