Small-Business Financing: Compare the Best Options of 2022

The top sources of small-business financing include loans from banks and online lenders, as well as small-business grants.

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You can get business financing by taking on debt, like small-business loans from traditional banks and online alternative lenders, or offering investors equity. The right financing for your business will depend on factors such as: why you need capital, how fast you need it and your business’s qualifications.

To help you find a good fit, here’s an overview of six of the most common financing options for small businesses — and where to get them.

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1. Bank loans

Best for: Established businesses with collateral and strong credit.

Traditional banks are a great starting point and can help you figure out where you stand in terms of qualifying for a loan. Types of small-business financing offered by banks include term loans, business lines of credit, equipment loans, commercial real estate loans and even business credit cards.

Bank loans typically have low interest rates and competitive terms, but can be hard to qualify for. You’ll likely need strong personal credit, established business revenue and two or more years in operation to access bank financing.

Even if your business doesn’t have a strong enough track record or enough assets as collateral to qualify for a bank loan, talking to someone at a traditional bank can help you figure out what application documents you need and what your best options may be.

Where to get bank loans

Start by contacting a bank with which you have an existing relationship. Big-name banks, like Chase, Bank of America and Wells Fargo, all offer a variety of business loan options.

If you don’t have an existing relationship with a large bank or one that offers business financing, you can search for local banks in your community.

These institutions, in particular, are a great resource for small-business loans because they often have a strong interest in economic development in the community. According to the Federal Reserve’s 2022 Small Business Credit Survey, business loan applicants report higher approval rates with smaller banks than big-name institutions, as well as greater overall satisfaction compared to large banks and online lenders

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2. SBA loans

Best for: Businesses that don't meet traditional banks' strict lending criteria.

The U.S. Small Business Administration offers lenders, mostly traditional banks, a federal guarantee on your loan. This makes it less risky for banks to lend you the capital you need to be successful. In guaranteeing the loans, the SBA also connects you with favorable rates offered by traditional lenders.

There are multiple types of SBA loans available, including SBA 7(a) loans, SBA 504 loans and SBA microloans. The most popular of the SBA loan programs, 7(a) loans can be used for a wide variety of purposes and are available in amounts up to $5 million.

Although SBA loans can be easier to access compared to bank loans, you’ll still need to meet top criteria — a good credit score (FICO 690 and up), strong annual revenue and at least two years in business — to qualify.

Plus, the application process isn’t easy; you may find yourself trapped under a heap of documents while you work through the appropriate forms.

Where to get SBA loans

Most SBA loans are issued by banks, credit unions and other financial institutions. Similar to bank loans, you can start your search for an SBA loan with a lender you’ve previously worked with, or a local bank in your community. National banks like Chase, Wells Fargo and Bank of America issue SBA loans as well.

The SBA website also offers a lender match tool to help connect you with financial institutions in your area.

3. Online loans

Best for: Business owners with shaky personal credit, who want fast funding or ease of applying.

With traditional banks limiting access to capital, online lenders have seen an increase in popularity, especially among business owners who have bad credit: 60% of medium- or high-risk credit applicants apply to online lenders or nonbank finance companies, according to the 2022 credit survey from the Federal Reserve

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Online lenders also offer fast cash, with several of them able to approve and fund applications within 24 hours.

These lenders offer a variety of small-business financing options, including term loans, lines of credit and invoice financing. The cost of borrowing, however, is generally higher; annual percentage rates can range anywhere from 7% to 99%.

Where to get online loans

There are a variety of small-business lenders out there that offer online loans — and the best option for your business will depend on the type of financing you need and what you can qualify for.

For example, if your business has strong qualifications but prefers an expedited process, Credibility Capital and Funding Circle are great options for traditional term loans. For businesses that want a flexible line of credit, Bluevine, OnDeck and Fundbox each offer competitive products.

Use NerdWallet’s business loan calculator to figure out your monthly payment on a loan.

4. Small-business grants

Best for: Free financing.

Small-business grants offer a way for business owners to get established or grow, without having to worry about paying back the funds.

Typically offered through nonprofits, government agencies and corporations, some grants focus on specific types of business owners or particular industries.

Small-business grants can be a great funding option for startups, as well as for businesses that can’t qualify for traditional debt financing.

The downside to free capital is that everybody wants it. It will take a lot of work to find and apply for grants, but time spent searching for free money opportunities could pay off in the long run.

Where to get small-business grants

Federal and state agencies, as well as private corporations, all offer small-business grants.

Grants.gov is one of the most well-known online databases for grants distributed by government agencies.

Your local Economic Development Administration branch or Small Business Development Center may also help you find grant programs and similar financing opportunities.

For grant options focused on different types of business owners, check out the following lists:

5. Credit union financing

Best for: Members who like a personal touch.

Like banks, credit unions offer favorable rates and loans backed by the SBA. But unlike banks, credit unions have increased their small-business lending. Between 2004 and 2020, the number of credit unions offering business financing doubled, according to a report from the Consumer Financial Protection Bureau

Consumer Financial Protection Bureau. Small Business Lending and the Great Recession. Accessed Oct 12, 2022.
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In addition to SBA loans, credit unions can offer a range of funding options, including lines of credit, traditional term loans and business credit cards.

You’ll likely have to be a member to qualify for financing. But the co-op nature of credit unions often ties them to the community, so you may also reap the benefits of more personal relationships and name recognition.

Where to get credit union financing

Since credit unions are often community-based, you’ll want to find a local option. You can use MyCreditUnion.gov to browse credit unions in your area.

Some credit unions also offer membership based on your employer or organizations you may be affiliated with.

For example, Navy Federal Credit Union is a national credit union that offers membership to members of the U.S. armed forces, Department of Defense and National Guard as well as their families. Navy Federal members can apply for a variety of business loan types.

6. Crowdfunding

Best for: Businesses with products that can capture the public's interest.

Crowdfunding sites such as Kickstarter rely on investors to help get an idea or business off the ground, often rewarding them with perks or equity in exchange for cash.

Although the popularity of these services has increased in recent years, there are caveats. For one, your product or company has to be intriguing enough to catch the eye of multiple investors.

In the case of equity crowdfunding, where investors gain a stake in the company, there are strict securities laws and rules to follow for investors and entrepreneurs alike.

Crowdfunding can be a worthwhile option for businesses just starting out, but it’s not a great solution for long-term financing.

Where to get crowdfunding

Platforms like Kickstarter, GoFundMe and Indiegogo are good choices for rewards-based crowdfunding. For equity crowdfunding, platforms like Republic, CircleUp and Fundable are all viable options.

Frequently asked questions

The best way to finance a small business varies based on factors such as why you need capital, how fast you need it and your business’s qualifications (e.g. credit score, time in business).

If you want the most affordable type of debt financing and you have strong qualifications, a bank or SBA loan might be your best option. On the other hand, if you’re a newer business or have fair credit, an online loan might be a better route. And if you’re looking to avoid debt altogether, grants or crowdfunding might be your best bet.

Small businesses typically use debt or equity financing — or a combination of the two. Debt financing involves borrowing money from a third party, which you then repay, with interest. Equity financing, on the other hand, means you receive money from an investor in exchange for partial ownership of your company.

Some of the most common sources of small-business financing include banks, credit unions and online lenders. Grants are also available from sources like nonprofits, government agencies and private corporations. Investors or crowdfunding platforms can offer equity financing.