Need funding for your business but completely overwhelmed by all of the options out there?
Don’t feel bad. Between the different business lending solutions available to you, navigating the various terms and types of financial products out there can feel like being thrown into the center of a maze without a map or a flashlight.
82% of businesses fail because of cash flow problems and a lot of that comes down to not fully understanding their business funding options.
But here’s the good news…
Once you understand the various business lending options available to you and how they all work, you can make informed decisions that keep your business’s cash flow steady and growing.
What you’ll discover:
- What Business Owners Should Know About Business Funding Options
- Traditional Bank Loans: The Old Way
- Alternative Lending: The New Way
- Popular Business Lending Options
Let’s do this.
What Business Owners Should Know About Business Funding Options
59% of small business owners applied for some type of financing in 2024, that’s over half of all small business owners.
That’s interesting in itself, but there’s a big issue…
According to Federal Reserve data, banks and credit unions only approved 14.6% of small business loan applications in 2024.
That is CRAZY low. Basically means that traditional bank lending just isn’t working for the vast majority of business owners out there.
So, to stop getting left in the dust and stay competitive, you need to know your funding options for business inside out.
Traditional Bank Loans: The Old Way
Once upon a time, the traditional bank loan was THE go-to source for funding your business.
You would literally walk into your bank branch and get the exact same service as every other customer.
Paper applications, weeks or months of waiting, meeting a bunch of hoops to jump through before the bank even considered whether to approve or not.
Banks have always been fussy about lending, but they’ve become ultra picky in the last few years.
They want:
- Perfect credit scores
- Years of financial history
- Tons of collateral and guarantees
- FANTASTIC, in-depth business plans and forecasts
No one but the biggest, longest-established businesses can hit that standard these days.
What’s more, their application processes are also insanely slow.
75% of big banks will approve basic loans in five business days.
That sounds fast, until you compare it to most alternative lenders who will do the same, often WITHIN 24 HOURS.
Alternative Lending: The New Way
Traditional banks might be easier to use than they used to be, but for many business owners, they’re still pretty much useless as a business funding option.
So what’s going on in the alternative space?
Alt lenders are booming right now.
The digital lending market is expected to hit $20.5 billion by 2026, up from $10.7 billion in 2021.
If there’s one word to sum up the growth of this market, it’s “solving problems”.
Business owners are deserting banks because they’re so bloated, slow, and stuck in the past that they aren’t solving their customers’ problems.
Instead, alternative lenders are all about:
- Faster Approvals. Often 24 HOURS, not weeks or months.
- Less stringent requirements: Alt lenders focus on more than just credit scores.
- More flexible terms: Alt loans are designed for businesses, not just big banks.
- Better customer service: Alt lenders are built for the business owners of today.
Popular Business Lending Options
These days, if you just NEED to borrow money from a traditional bank (govt. loans aside) then your most popular option is the business line of credit.
Business lines of credit are available from both banks and alternative lenders. Most of the reasons above will apply to both. We want to focus on alternative lenders though, as that is where most businesses are getting their funding.
Business lines of credit are pretty much exactly what they sound like: a line of credit you can draw from.
It’s like a credit card for your business, but better.
Approval is given for a certain amount (say $100,000) and you only pay interest on what you draw (use). So maybe you use $10,000 one month, but only $3,000 the next month.
Because of this, business owners love them.
The benefits of a business line of credit include:
- Flexible access to cash when you need it
- Only pay interest on what you use.
- Faster Access to cash
- Easy to get back (revolving credit)
Lines of credit are great for smoothing out cash flow hiccups, paying for unexpected expenses or short-term opportunities, or simply when you need quick access to funds.
Equipment Financing: Pay As You Grow
Do you need equipment but don’t want to tie up your cash reserves?
Equipment financing (leases) let you spread the cost over time while the equipment earns money for you. Lower rates, tax benefits and flexible terms make equipment financing attractive for machinery, vehicles, or technology purchases.
Invoice Factoring: Turning Invoices Into Cash
Need money to cover your payroll but your customers take ages to pay you?
Invoice factoring lets you sell your unpaid invoices for immediate cash. You get between 70-90% upfront and they chase payment from your customers. It’s perfect for businesses with long payment terms or seasonal cash flow gaps.
Merchant Cash Advances: Quick but Expensive
Need cash fast? Merchant cash advances give you money upfront for a percentage of your future credit card sales.
The good: ultra-fast approval, no collateral or guarantees, and payment amount goes down when sales slow.
The bad: VERY expensive rates and daily repayments can cripple cash flow.
Only use these if you absolutely have to have cash right now and have exhausted all other options.
Government Programs: Look Before You Discount
SBA loans are still among the lowest interest rates around. Granted, the paperwork and waiting time is a HUGE pain, but you can save thousands in interest charges.
The average SBA loan in 2024 was $458,584.
Some of the most popular programs include:
- SBA 7(a) loans
- Microloans
- SBA Express loans
- SBA CAPLines (working capital loans)
How To Choose The Right Type Of Funding For Your Business
There are so many funding options for business owners these days that it’s hard to know where to start.
A good starting place is to think about some of these questions:
- How urgently do you need the money? Emergency cashflow problem? Funding for a planned expansion?
- How much do you need to borrow? Small amounts, or a large purchase or investment?
- What is your credit rating like? Perfect credit gives you more options.
- What is it for? Different funding types are better for different purposes.
- How important are the costs? Cheaper money vs. faster money?
Try and match your individual needs and circumstances to the funding sources above, and you’ll save time, money, and hassle.
Business Funding Strategies For Success
Look at the businesses out there that are getting funding right, and you’ll see a few key trends:
- They Diversify: Don’t put all your eggs in one basket. Apply for business credit lines when you don’t need them.
- Plan Ahead: Don’t wait until a cash crunch to start exploring options.
- Know the true costs: Calculate the real cost of funds before you borrow.
- Build relationships: Start talking to lenders now, not when you need the money.
Final Thoughts
The business lending world is changing fast.
Embedded lending is exploding right now (expected to grow to $23.31 billion by 2031), while technology is making the entire process faster and easier than ever before.
So the bottom line is this: more options for business owners than ever.
Getting Started With Your Business Funding Needs
So, what do you do with all of this info? Don’t let yourself get confused and lose track of your business’s funding needs.
Here are some simple steps to get you started:
- Take stock of your current situation: cashflow, credit standing, etc.
- Do your research: don’t jump at the first offer.
- Start building relationships NOW: Start conversations with lenders long before you need the money.
Business funding is a powerful tool that can fuel growth and smooth out cash flow when used properly.
Pick the wrong source of funds and it can become a source of stress and a drain on your resources.
Choose wisely.
To read more content like this, explore The Brand Hopper
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