Business Financing 101: Every Way to Fund a Small Business

There are more ways to fund a small business than most owners realize, and fewer that fit any particular moment. This guide walks the whole landscape once: the difference between debt and equity, the eight loan products lenders actually offer, what secured and unsecured mean in practice, how much you can realistically borrow, what it costs, and a simple way to choose. Read it start to finish once; afterwards, jump to the section you need.

Equity means selling a share of the company for cash. It never has to be repaid, and it costs you a share of every future dollar, plus a partner with a vote. It fits businesses aiming for a sale or a very large scale. Debt means borrowing cash and repaying it with interest. You keep the whole company; the lender only cares that you pay on time. For the vast majority of owner-operated businesses, debt is cheaper and simpler, which is why this guide spends most of its time there.

In between sit revenue-based financing, which is repaid as a percentage of sales, and grants, which are rare, slow and worth applying for anyway if you qualify.

Almost every offer you will ever see is one of these.

• Term loan: a lump sum repaid on a fixed schedule over six months to five years. Best for a defined investment with a payback.
• Business line of credit: a limit you draw against and repay repeatedly, paying interest only on what you use. Best for cash-flow gaps.
• SBA loan: a bank loan backed by a government guarantee, with terms up to ten years (twenty-five for real estate) and low rates in exchange for a slower, document-heavy process.
• Equipment financing: a loan or lease secured by the equipment itself, so the rate is lower and startups can often qualify.
• Invoice financing: an advance of 80% to 90% on unpaid invoices, repaid when the customer pays. Best when slow-paying customers are the problem.
• Merchant cash advance: a purchase of future card sales for cash today, repaid daily or weekly. Fast and flexible, and the most expensive option on this list.
• Commercial real estate loan: long-term financing to buy, build or refinance the property the business operates in.
• Business credit card: revolving credit for small, frequent spend that also builds your business credit file.

A secured loan is backed by something the lender can take if you stop paying: equipment, property, receivables or a blanket lien on business assets. It costs less because the lender's risk is lower. An unsecured loan relies on your cash flow and, almost always, a personal guarantee, which makes you personally responsible for the debt. Read that clause. Most online business loans are unsecured with a personal guarantee, and many also file a UCC lien, a public notice that the lender has a claim on business assets. Neither is unusual. Both should be understood before you sign.

Rules of thumb that hold across most of the market: unsecured term loans and lines usually top out at 10% to 15% of annual revenue, or about one to two months of deposits. Secured equipment financing goes to the value of the equipment. Invoice financing is limited by the invoices you have outstanding. SBA loans can reach $5 million but are sized to the cash flow that will repay them. Lenders check that your total loan payments stay comfortably under your operating cash flow, typically by a margin of 20% or more. An application that respects that ratio is approved faster and priced better.

Rates depend on product, time in business, revenue and credit. Illustrative ranges: SBA and bank term loans from 7% to 14% APR; online term loans and lines from 10% to 30%; equipment financing 6% to 20%; invoice financing 1% to 3% of the invoice per 30 days; merchant cash advances at factor rates of 1.15 to 1.40, which convert to APRs well above 40%. Always ask for APR and total payback. Two offers with the same headline rate can differ by thousands of dollars once fees and payment frequency are included.

Work through four questions in order.

• What is the money for? A defined purchase points to a term loan or equipment financing; a recurring gap points to a line; slow customers point to invoice financing.
• How fast do you need it? Lines and short-term loans can fund in a day; SBA and real estate take weeks.
• What can you show? Six months of statements opens cash-flow products; two years of returns opens the bank.
• What is the total cost against the return? If the investment earns more than the loan costs, borrow. If not, wait.

You do not have to pick the product before you apply. On FundLine, one application is matched to the lenders and products that fit your profile, and you compare the offers that come back. Fifteen minutes, no impact to your credit score, and a clear answer on what your business can borrow today.