business financing

The Entrepreneur’s Guide to Small Business Financing

Business Financing

Business financing is a critical aspect of any small business. Funding gives your business the boost it needs to grow and thrive. 

There are various small business financing options. You will need to consider several factors like the application process, interest rates, requirements, etc. 

Funding can greatly impact the future of your business. Read on to find out the various financing options you can choose from and tips to manage small business finances. 

5 small business financing options to grow your business 

Choosing the right funding option is one of the most important choices you will make for your business. Here are a few small business financing options to consider: 

  1. Traditional bank loans
  2. Business lines of credit
  3. Online business loans 
  4. Small Business Administration (SBA) loans 
  5. Crowdfunding 

Traditional bank loans

Loans from traditional financial institutions like banks are one popular way to borrow funds. Interest rates are typically lower and more affordable especially if you are building a start-up business. However, qualifying for bank loans may not be easy for new startups or individuals without a good credit score. 

Business lines of credit 

Small businesses go through various changes and you may need cash fast. A business line of credit is a flexible funding option that allows you to borrow money as needed. 

If you need small business startup loans but don’t know exactly how much you need, this could also be a great funding option for you. 

Business lines of credit function like credit cards. You can borrow funds up to a credit limit on your account. Once you open the line of credit, you can receive cash at once without any lump sum disbursement. 

Similar to using a credit card, as you take out cash from your line of credit, your interest begins to accrue. As your business repays borrowed funds, your credit increases. However, you will not be able to borrow money when you get to the limit set by lenders. 

You can get business lines of credit through traditional financial institutions and online lenders. All you need to do is meet the specified criteria for approval. 

Online business loans 

Thanks to advancements in financial technology, you can easily find online commercial lending platforms that offer commercial loans you can apply for, and right from your home. 

Different online lenders have different loan limits, interest rates, and fees. You want to compare different online lenders to find out which works best for your business. Typically, online loans are more accessible and have flexible approval criteria than traditional bank loans. However, using online loans may come with higher interest rates and fees. 

Small Business Administration (SBA) loans 

The US Small Business Administration (SBA) partners with lenders to provide affordable ways for small businesses to access business financing. 

With this type of loan, the federal government guarantees a part of the loan. With SBA loans, you have minimum investment risks and can be sure of SBA-approved lenders. You can borrow as high as $5 million and repay some loans that you can stretch as far as 30 years. 

However, like traditional banks, the criteria for approval may be tedious. 


Crowdfunding is a business financing option that involves raising amounts of money from a large number of people. This is similar to raising capital from family or friends. There are different crowdfunding options including Debt Crowdfunding, Equity Crowdfunding, Reward Crowdfunding, and Donation based funding. 

Each type comes with its pros and cons. For example, GoFundMe is a donation-based crowdfunding platform that allows you to receive funds for your business without having to repay. However, getting the word out and convincing people to donate to your business may be challenging. Some Crowdfunding platforms include Kiva, Kickstarter, Indiegogo, and so on. 

5 easy tips for managing small business finances

Effectively managing your finances is key to creating a stable financial future for your business. Here are some tips to help you manage your small business finances effectively. 

Differentiate your personal account from your business account 

Mixing both personal and business accounts could lead to overspending or using business funds for personal use and vice versa. In addition, it makes it difficult to track money spent and money received. To keep accurate financial records for your business, it is important to separate your personal account from your business account. This will make it easier to make tax deductions and oversee your funds. 

Create a detailed financial plan

To manage your small business effectively, you need to prioritize financial planning. You need to create a comprehensive plan that will help you meet your overall business goals. You also need to analyze your financial reports to draw insights for better business performance. Your financial plan should include components like budgeting, accounting, tax planning, and risk management. 

Understand your cash flow

Maintaining a positive cash flow is essential for business success. Ultimately your cash flow is where you spend your finances. 

To consistently maintain a positive cash flow, you need to keep an eye on your overhead rate. Look at your business expenses including overhead costs. You can leverage financial tools to help you understand your cash flow statement. 

When you understand your cash flow, you can plan your business expenses within a specified period and avoid overspending. 

Create a financial budget and follow it 

A financial budget can change the face of your business operations. It can forecast your revenue and plan your expenses effectively. It will also help you reach your business goals faster. A good budget should contain monthly income sources like payments made for the product or service and expenses like tax payments, payroll, insurance, inventory, and so on. 

Don’t forget to pay yourself 

If you’re running a small business, it can be quite tempting to exempt yourself from the payroll. After all, you want to invest all you can to ensure your business grows. However, it is important to maintain a healthy balance between personal and business finances. 

You can ensure you pay yourself using two methods. You could pay yourself a salary just like an employee or take a percentage of the business’s net profits. 

Don’t forget that you are a part of your business and you need as much compensation as your employees. This will also keep you motivated as a business owner. 

Final thoughts 

Managing your small business finances should be something you prioritize at the start of your business. To achieve long-term goals and ensure continuity in business, you need to understand the numbers. 

Financial management also helps you cut costs, identify investment opportunities and drive your overall business goals.  

For professional advice on managing your small business finances, you can reach out to Shawn Khorrami at Khorrami Consulting.