We Compare 7 Ways How to Fund a Small Business (With Pro Tips )

Entrepreneurs are an excitable bunch that are tirelessly hungry to grow the next million-dollar idea. But, no matter how brilliant the idea, many still need lots of help when it comes to learning how to fund a small business, especially in the early years of business. 

The good news is that according to a survey published by the World Bank, 90% of businesses worldwide are small businesses. So you are not alone. 

The bad news is that you won't be among them if you don't know how to fund a small business in today’s competitive market. 

Launching a new business or expanding an existing one is difficult when bootstrapping or using personal funds. Thankfully, there are plenty of alternatives to funding, and each has unique benefits and requirements.

Many options may have already popped up in your search for how to fund your small business. 

This article will aim to spotlight the top 7 most efficient ways to fund a small business, including each option’s pros and cons from a neutral point of view. 

We’ll cover the following:

  • Bank loans
  • Small Business Administration (SBA) loans
  • Angel investors
  • Venture capital 
  • Crowdfunding
  • Microloans
  • Online loans
  • Pro tips to increase the chances of getting funded
[Starting a small business and need to find reliable funding quickly? Duckfund provides affordable financing for small businesses with higher approval rates, lower interest rates, and easy applications.]

1. Bank loans

Banks offer small business loans the traditional way. They provide a fixed amount of money for a specific purpose and require repayment over a set period of time with interest. 

Typical small business financing options from banks include business lines of credit, equipment loans, commercial real estate loans, term loans, and business credit cards.

There's no one-size-fits-all solution. Instead, they are determined by factors including the small business industry, size and history, as well as the lender size. Qualifying for a bank loan can be difficult, and many small businesses fail to meet the basic requirements.

Small business owners must have a solid business plan, excellent credit, established revenue, and two or more years in operation. Some banks require the owner's money to be invested as proof of commitment.

Bank loan pros

  1. Banks provide cash loans, so small business owners retain full control of their businesses.
  2. Repayments can be scheduled to suit the business owner.
  3. They have fixed monthly payments due to the locked-in terms.
  4. Most banks don't charge origination fees to process the loan.

Bank loan cons

  1. Long processing times that can take seven working days at a minimum. 
  2. Requires a high credit score starting from 660 and up.
  3. Missing a payment or being late imposes additional fees.

2. Small Business Administration (SBA) loans

The United States federal government offers Small Business Administration (SBA) loans to assist entrepreneurs in starting small businesses. The Small Business Administration works with lenders such as banks, community development organizations, credit unions, and micro-lending institutions.

While the SBA does not make direct loans, it does incentivize its partner lenders to lend money to businesses that do not meet the strict lending criteria of traditional banks by providing a federal guarantee for the business loans. 

The SBA provides a variety of loans, and the two most common are:

7(a) Loans

This is a bank-originating loan partially guaranteed by the SBA, with a typical loan size ranging from 75% to 85%. It is a desirable option for some businesses because it can be in amounts of up to $5 million.

504 Loans

This comprises two loan parts: The bank makes loans for over half of the project cost, while the SBA guarantees up to 40% of the remaining part. Depending on how the bank handles the conventional loan, this type may offer more than 7(a) loans.

Although SBA loans help small businesses overcome traditional bank loan restrictions, small businesses must still meet criteria, such as providing a clear business plan with positive projections and a good credit score (FICO 690 and up). Furthermore, the business must be profitable and have been in operation for at least two years.

Small Business Administration (SBA) loans pros

  1. SBA loans are more adaptable than bank loans.
  2. There are both long-term and short-term options available.
  3. Borrowers should be given an official guarantee.

Small Business Administration (SBA) loans cons

  1. SBA loans take longer to process and approve.
  2. There are some additional charges.
  3. There is more paperwork to be completed.
  4. Strict qualification requirements must be met.

3. Angel investors

Angel investors are individuals who provide funding to companies with a business idea that they want to be a part of. 

The financing offer is typically made in exchange for a stake in the company. Aside from providing the necessary funds, they also provide supervision, relevant experience, and valuable advice that supports business success.

Finding the right angel investor necessitates impressing them, whether through the business idea itself or providing a solid business plan and detailed accounting of the company's financials.

Angel investors will be part of the management team and are not expected to be "passive or silent partners,"
so it is critical to determine (and designate) their role, what type of decisions they will be involved in, and so on.

Angel investors Pros

  1. Angel investors' loans do not require any fees or charges to be secured.
  2. There will be no repayments because they will receive a portion of the profit.
  3. Angel investors lend credibility to the company, which can aid in the acquisition of additional funds.
  4. Angel investors provide business monitoring, advice, and expertise.

Angel investors Cons

  1. Angel investors usually enter into deals to own a portion of the company's equity.
  2. They will have a say in how the company is run and how their money is spent.

4. Venture capital 

It is common for business owners to mistakenly associate venture capital (VC) with angel investing. But they do differ. 

The primary distinction between the two is that while VCs tend to invest in growing companies with a track record of growth, angel investors are usually individuals who are more likely to invest in startups and get hands-on in the day-to-day business. 

Additionally, while venture capitalists (VCs) reinvest resources from companies and individuals that offer them funding, angel investors invest their own money and labor. VC investing, like angel investing, is not just about providing capital – it can also fill the skills gaps of business owners by offering the necessary direction, connections to the industry, and a clear course for the company.

Venture capital pros

  1. VC firms offer sizable funding sources.
  2. Provides valuable experience that can save money in the long run.
  3. Boost business development and help get future funding if needed.

Venture capital cons

  1. Finding and persuading venture capital is challenging.
  2. Giving up some of the business's ownership in exchange for a VC loan.
  3. There is no assurance of expansion.  

5. Crowdfunding

Crowdfunding has grown in popularity as an alternative to traditional loans for individuals and businesses. It involves publishing the business pitch online, including a detailed business plan, funding goals, and financial trajectory. 

The next step is to usually propose to family members, friends, and strangers to back the project and provide funding.

Today, one of the leading platforms for crowdfunding is Kickstarter, which has contributed to funding 228,272 projects, including many small business enterprises. Indigogo is also a popular crowdfunding platform that has helped fund thousands of businesses.

If you have a business with unique products that can easily pique people's interest online, crowdfunding could be a great way to fund it. However, those funds will not be free, and in some cases you will need to offer "rewards," such as gifts, and in others, you will need to offer a share of the company's equity.

The most crucial step to succeeding in crowdfunding is marketing, as people must be aware of your campaign, which requires significant effort and time. Furthermore, several marketing channels like social media platforms and email campaigns also need considerable funds to reach your targeted audience. 

Crowdfunding pros

  1. Provides a viable alternative to traditional loans with numerous restrictions, such as high personal credit scores.
  2. It is simple to set up.
  3. There is no repayment because of the reward system.
  4. Spreads the word about the business and provides brand awareness.
  5. Provides a good method to pre-sell products.

Crowdfunding cons

  1. There is no guarantee that the funds will be secured.
  2. When you use equity crowdfunding, you will give up some of the company's ownership.
  3. Some crowdfunding platforms charge high fees to process campaigns.
  4. If the fundraising goal is not met, some platforms return the contributions to the backers and deny you access to them.
  5. Crowdfunding is time-consuming and requires a significant effort to raise awareness of the campaign and collect funds.

6. Microloans

A microloan is a short-term loan that provides funding ranging from $5,000 to $50,000

Microloans are intended to help small businesses get started and are typically used to provide capital for various purposes, such as purchasing inventory and equipment, paying employees, and covering seasonal costs. 

Nonprofit organizations typically provide these loans. However, that doesn’t mean its charity – the loan must be repaid. There are also some requirements, such as a check of the applicant's personal credit history.

Microloans pros

  1. In comparison to other forms of funding, microloans have low-interest rates.
  2. Microloan qualification criteria are more stringent than traditional funding methods.
  3. It has a wide range of applications.
  4. They are made available by various lenders, including nonprofits and government agencies.

Microloans cons

  1. Microloans provide small loans of no more than $50,000.
  2. They are short-repayment loans because they must be repaid within a year.
  3. In some areas, there is a lack of availability.
  4. While they have lower interest rates than traditional loans, they may have higher rates than some SBA loans. 

7. Online loans

Technology has modernized the traditional loan process and changed people’s perception of how to fund a small business.

Entrepreneurs are a time-strapped bunch that want to get funds and launch their projects as soon as possible, yet there are still many common reasons for a loan being denied through traditional channels. 

Online loan applications have changed this. They can be completed from any location with an internet connection without the need to visit a physical branch or existing banking history. 

Most applications can be processed and answered quickly, usually within 24 hours.

Numerous online loans are available today, including:

  1. Traditional term loans that provide a sum of money that must be repaid through monthly payments plus interest.
  2. Invoice financing, which is when the online lender buys a percentage or entire amounts of overdue invoices, and you will pay it back over a set period of time, usually with low interest. 
  3. A merchant cash advance, which is a lump sum of money given to you in exchange for a sum of your future sales. 
  4. An equipment loan, which covers the entire or a portion of the cost of the equipment purchases, with the equipment acting as collateral for the loan.

Online loans pros

  1. Lots of simplicity since online loans don’t involve paperwork.
  2. Unlike traditional funding methods, which can take days or weeks, online loans are usually processed within 24 hours.
  3. A low credit score will not prevent you from receiving the funding.
  4. A wide range of loan options is available.

Online loans cons

  1. Because the process is entirely online, some security concerns may exist. Do research and ensure your online lender is reputable. 

Bonus Tip

Even though online loans have recently gained popularity, finding the best one can be challenging. Therefore, when choosing an online loan platform, do your homework, check company reviews, and fully understand the application and funding processes.

Because everything is done online, customer service and support are your best friends. You will likely have many questions, so check their customer service to ensure they are available and able to assist.

[Not sure which loan option is most relevant for you still? Duckfund provides affordable financing options for small businesses with higher approval rates, lower interest rates, and easy applications.]

Bonus Section:  Additional pro tips to improve your chances of getting funded

Before getting started with funding a small business, you must be prepared to increase your success chances. 

Applying for loans can be a stressful process, but the following tips will make things easier for you:

1. Define the loan's purpose and type

Some lenders will inquire about your reasons for requesting a business loan. 

Entrepreneurs require loans for various reasons to start a business, expand it, buy equipment, etc., so defining the loan type is critical since each type has its own restrictions and demands.

In turn, the lender's requirements will depend on the loan's purpose. The amount of money required can be determined by defining the loan's purpose; for example, micro-lending isn't the best option for large sums.

2. Determine what payments you can afford

Lenders will need assurance they will receive their money back. Most lenders will demand monthly repayments plus interest. 

Therefore, it's crucial to understand how much you can conveniently pay each month. To get a rough idea of your paying capacity, carefully examine your company's finances, particularly its cash flow.

3.Create a solid business plan

A business plan increases your chances of obtaining funding for your small business. It assists you in steering your company's growth by providing documented goals and a roadmap to follow. It also gives lenders a detailed breakdown of how the funds will be used and proof that you can repay the loan.

The financial plan and projections are typically the most important component, so when applying for a loan, create a clear income statement, cash flow statement, and balance sheet.

4. Review available lenders and their requirements

After gathering all the necessary information and documents, it's time to identify the best lender for you. 

Conducting thorough research and listing potential lenders with their specific requirements, fees, processing times, quotes, etc., can take time, but it is worth the effort.

Some traditional lenders, such as banks, will, for example, prioritize credit history. In contrast, some innovative emerging funding methods, such as online lending platforms, will focus on the business, its current online activity and future potential to generate revenue. 

One of these emerging platforms is Duckfund, which provides small businesses with quick loans in less than 24 hours. 


  • There are numerous funding options for small businesses, and each has specific needs.
  • Traditional lenders, such as banks, have stringent criteria and lengthy application processing times.
  • Innovative options, such as online lending platforms, provide quick funding options, which is especially beneficial for businesses without strong credit history or assets to pledge as security.
Register and apply for a loan in less than 1 minute

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