Are you looking for the best business funding options to help grow your business? The good news is that there are plenty of excellent options available – although they each come with their own pros and cons. Knowing which option is best for your particular circumstances can feel like a daunting task. 

Funding options for growing your business range from the more unconventional, such as crowdfunding platforms, to more traditional funding sources like bank loans. How do you know which one is right for your business, and which one(s) should you choose? We compare the pros and cons of many of the best business funding options below, along with how to tell if they’re right for your growing business. 

Before You Fund

If you’re a business owner looking at funding sources to help you grow your business, there are a few steps to take before you fund, including: 

• Look at current opportunities. Before taking on a new funding source, ask yourself if you’re maximizing your current funding opportunities. Are there any grants or small business loans you can (re)apply for? Is your line of credit or credit card at a suitable limit? Also consider if there are any areas of your business you can streamline to help maximize revenue, such as using a smaller storage space if you have to store inventory.
• Prioritize based on goals. This is where having a solid business plan in place will help you to determine where to spend your funding. Maybe you want to invest in marketing efforts to help bring in new customers, or need an influx of cash to purchase supplies for a large project. Prioritize your funding based on your goals for best results. 
• Consider how fast you need cash. Some of the more common types of funding types (like business lines of credit or grants) take time to put in place. Others (like invoice funding) can provide you with cash in the bank in a matter of days. Be sure you plan accordingly. 
• Look at your balance sheet. You need to be profitable in order to access most sources of funding. Your profit-and-loss and balance sheet will need to reflect that. You typically need to have three years of financial statements with either recent profitability or a very clear path to profitability for an application for funding.
• Ease of application and approval. The good news is that after you’ve been in business for a couple of years, you have the credit history and business credit score necessary to qualify for most funding options. And even if you don’t quite qualify for traditional financing, there are other alternative financing options for growing your small business.
• Improve a bad credit score. If you have bad credit and your credit score is holding you back from getting the funding you need for your business, you should work to improve it. Ensure bills are paid on time each month, try not to take on additional debt, do not apply for more credit than necessary, and keep your credit utilization under 30%.

Creating a Custom Funding Mix

One of the best ways to help ensure the success of your business in a growth stage is to diversify your funding sources. Relying on just one funding type can put your business in a tricky situation should funding ever dry up or max out. For this reason, it’s important to use at least a couple of different funding sources or loan types. By creating your own custom funding mix, you can ensure you have the funding you need to grow your business. 

There are many ways to fund your business out there and they are not mutually exclusive. You can – and should – have multiple sources of funding that complement each other well. If you can determine your financial needs and goals, you’ll be well on your way to finding that ideal mix. By finding and using complementary financing options, you can easily solve any funding problems. 

Here are some of the best business funding options, and when you may want to use them. 

Crowdfunding 

Crowdfunding allows businesses to raise funds from a large number of individuals who want to support their growth. These platforms allow companies to reach potential investors without having to go through the lengthy process of raising venture capital. They have the benefit of not requiring businesses to give up equity in the company, and offer a low overall risk with the potential for a big reward. On the other hand, their high upfront costs and high pressure campaigns might be a turnoff for some businesses. 

Is it right for your business?

If you have a product you want to launch or scale, but don’t have the necessary capital, a crowdfunding platform can get you the raise you need to level up. They tend to have a low success rate, so invest in your marketing plan and be prepared to pivot to Plan B if you don’t meet your goal.

Invoice funding

Invoice funding is an innovative funding solution for businesses that can substitute for a lot of these other funding methods, or complement them. It allows businesses to get their invoices paid ahead of net terms for quick access to cash. It’s also known as invoice financing or invoice factoring. This affordable financing option puts cash in the bank in a matter of days, instead of waiting months. A funding company purchases your unpaid invoices at face value (minus a small fee) to help free up slow accounts receivable. You only pay when you fund, and only fund when you need to, meaning you can fund your growth on your terms.  

Unlike a line of credit or other financing options that create debt, invoice funding doesn’t require repayment from you (since the fee comes out of the invoice amount and your customer pays the invoice to the invoice funding company) and takes the work of handling accounts receivable off your plate. Less reliance on credit and personal loans mean you can grow your business without debt or equity. It’s fast and flexible – and the more you invoice, the more funding you have access to. Many small businesses use invoice funding in addition to more traditional funding options. 

Bank loan

A traditional bank loan is one of the most popular methods of business funding, and is an ideal choice if you’re looking to cover inventory, make equipment purchases, or want to expand. Short-term loans have a short repayment period, while long-term loans let you pay back over a longer period of time. Loan applications can take some time to approve. The good news is that they’re a temporary expense, and the interest is tax deductible. The bad news is that they are hard to qualify for, come with high interest rates, and there’s no repayment flexibility.

Is it right for your business?

A bank loan through a traditional lender is a popular funding option that many businesses take advantage of for growth opportunities. Once your business is established, you’ll have an easier time getting approval. Many businesses use business bank loans along with other financing options in order to meet the demands of a growing small business. 

Line of credit

A business line of credit gives you access to a maximum amount of money you can borrow, and you can repay at any time without any prepayment penalties. It functions similarly to a credit card in this way. Each month, you’re required to make a minimum payment based on the amount you’ve borrowed. They often offer competitive rates, and your credit limit can increase over time. They’re a good source of growth funding as you only borrow what you need, and can repay anytime. Unfortunately, they can be expensive, hard to qualify for, and the application process is time consuming. 

Is it right for your business?

If you’re looking for a flexible funding option to help cover any gaps in your cash flow or cover off expenses so you can bid on larger projects, a line of credit is an excellent option. The more successful your business, the higher your limit will grow. Many businesses have a line of credit in addition to other funding sources as a funding backup. However, many businesses can’t meet the rigorous requirements, making the rejection rate high. 

Equity financing

If you’ve watched “Dragons' Den” you have an idea of what equity financing is. Basically, you give away a percentage of your business in return for a specific amount of funding. It’s a quick way to get a large influx of cash, and you’ll gain an investor who’s interested in seeing your business succeed in the process. Unfortunately, you give up some control over your business in this arrangement, and there’s a lack of tax shields.

Is it right for your business?

If you’re looking to raise a lot of capital for your business to cover operating expenses or invest in your growth potential, and don’t mind taking on an additional partner, equity financing may be a good option. Even with equity financing, you’ll still likely use other funding sources discussed in this post. 

Credit card

While taking on debt through credit should never be done lightly, sometimes paying for certain expenses with a credit card is just more convenient or simply necessary. As part of the application process for a business bank account, you’ll likely be given the option of applying for a business credit card. It’s always good to accept this option, as you don’t have to use it if you don’t want to, but you’ll be happy you have it if you need it! They’re easy to qualify for and widely accepted. You can also earn points or get special perks. On the downside, their small limits are not really ideal for large funding needs, and they carry high interest rates.

Is it right for your business?

Having a business credit card is a convenient option to bridge any short-term funding gaps your business may encounter, and cover off smaller business expenses. Like personal credit cards, business credit cards must be used wisely to manage your expenses and track your expenditures.

The bottom line is that there are many funding options out there that can help your business grow. Explore all your available options and choose a funding mix that supports your goal for the short and long term. Now that you have a better idea of the best business funding options and how they compare, you’re in a better position to choose the right funding type for your needs, or additional funding sources. 

About FundThrough

FundThrough is a leading fintech company accelerating cash flow and enabling growth for small and medium businesses. Based in Toronto, FundThrough’s AI-powered invoice funding platform gives B2B businesses fast, customized funding offers to get their invoices paid in a few days - rather than a few months - and get quick access to cash that’s already theirs. For more information, go to http://www.fundthrough.com. To learn about FundThrough’s partnership with Intuit QuickBooks and how you can fund an invoice, click here. If you’re ready to create a free, QuickBooks integrated account, get started here.