Small Business Funding: What You Need to Know

Every small business owner faces different demands, but most have at least one thing in common as they expand: a need for small business funding. Securing funding for your small business may be a major obstacle that can make or break your success before you have a chance to start earning a profit.

While some startups may have access to resources to help them cover their initial operating expenses, many aspiring small business owners aren’t so fortunate. Usually, this means they’ll need to get financing from a lender in their early stages, which can last anywhere from a couple of months to a few years. Even if your business is already well past its startup phase, at one point or another, it can still face expenses that will require you to apply for small business funding.

In the past, this process has involved visiting brick-and-mortar financial institutions. Today, lenders like OnDeck offer convenient funding for small businesses online — taking the stress out of going to a bank for your financing needs.

What is small business funding?

Small business funding, also known as startup financing, refers to the money that small business owners need to borrow to start or expand their small business. It can also refer to the funding that current business owners require for the purposes of securing working capital when it’s in short supply, financing future business plans and more.

Choosing the proper funding for your small business is perhaps the most important financial move you’ll need to make as a business owner — given the considerable impact it’ll have on your day-to-day operations. Aside from ensuring that you’ll have enough funds to cover your business needs, you should also consider what exactly you’ll need the funds for. Not all small business funding is made equal, and certain forms are better suited for specific purposes, such as purchasing equipment or assisting with payroll.

While it comes in many different shapes and sizes — there are two general categories of financing that small business owners typically have to choose from in order to get the funds they need.

What are the two sources of funding for small businesses?

The two most traditional ways that borrowers have been able to access small business funding are through equity financing and debt financing.

How does equity financing work?

Equity financing requires a business owner to sell shares of their company in order to raise funds for their business needs. In this funding scenario, the business owner is essentially selling partial ownership of their small business to interested investors in return for capital.

With equity financing, borrowers don’t need to repay the funding they receive in the near future, as it is generally considered a long-term financial agreement. However, this form of financing does come with a few limitations. For instance, the business owner may have to share a certain level of financial control over their business with investors.

What is debt financing? 

Debt financing is a type of funding through which a business borrows money from a lender and accepts a financial debt in exchange. This is the more typical form of business funding, as it is simpler for small business owners to qualify for — especially if they’re having trouble finding investors. Plus, with debt financing, the small business owner can have more influence over the important decisions they make regarding their business.

Unlike equity financing, the money borrowed through debt financing must usually be repaid in a much shorter time frame. It also comes at a greater cost due to added interest and fees that are often part of a debt financing agreement. Still, debt financing is generally more popular among small business owners who value the flexibility, funding options and financial control it can offer.

How do I get funding for my small business?

Finding a lender that can offer funding for small businesses can be challenging — especially for those that are newly established, privately owned or facing financial hardship. Aside from their strict eligibility requirements, traditional small business lenders frequently have a lengthy application process. This may involve considerable effort up front, such as filling out paperwork and providing collateral that business owners may not yet have access to when launching a new small business.

While many lenders offer financing that can be used for any expense, including the costs of starting or running a company, you can find providers that specifically offer small business funding. Generally speaking, small business lenders can provide financing options that are a better fit for the unique demands of a business. This may make it possible to receive financing that works with more urgent business development needs.

There are a few key aspects of your business that will likely determine whether you can qualify for small business funding from a reputable lender, such as your:

  • Personal FICO® score
  • Business credit score
  • Business annual revenue
  • Time in business
  • Cash flow

As you can see, many of these deciding factors can present difficulties for newer small businesses, which may not be able to meet the requirements to borrow from traditional financial institutions. Fortunately, OnDeck offers several small business funding solutions with amounts and repayment terms that can potentially fit your specific needs.

What are the pros and cons of small business funding?

More often than not, deciding on the right small business funding option is a critical choice that all self-employed professionals and business owners will need to make at some point. Depending on the lender, there are a few different financing types to choose from, each with its own pros and cons. Below are some examples to keep in mind when comparing funding options for your small business.

U.S. Small Business Administration (SBA) Loan

Despite what its name suggests, an SBA loan is not a loan that is provided by the U.S. Small Business Administration (SBA) itself. However, SBA loans are guaranteed by the SBA, which means that small business lenders are able to offer funding to businesses that wouldn’t normally qualify for a standard loan.

SBA loans are available through traditional lenders such as banks and credit unions, but some alternative lenders may offer them as well. Regardless of the source, SBA loans often require well-established business credit and the application process is quite rigorous. Like small business grants, they can also be highly competitive due to the fact that they are sought after by many businesses.


  • SBA loans can offer lower interest rates
  • Funding comparable to traditional small business grants and loans
  • No collateral needed for some SBA loans


  • Long application process that can span months
  • Well-established credit history often required
  • Certain restrictions may apply to funds

Merchant Cash Advance

A merchant cash advance isn’t technically considered a small business loan, but it can provide funding for business development. With a merchant cash advance, a business owner receives a lump sum of capital up front in exchange for a set portion of their future sales.

Unlike most other forms of financing, a merchant cash advance is typically paid back through a “holdback” repayment. The holdback option is often less familiar to many small business owners, but it generally involves paying a percentage of their revenue applied to the cash advance. In other words, the repayment amount depends on daily business income according to credit and debit card receipts.


  • Allows small businesses to monetize future income
  • Alternative for those who don’t qualify for a small business loan
  • Lower financial risk as payment obligation is tied to your revenue


  • Payments don’t typically build business credit
  • Cost may be much higher than other funding options
  • Must accept debit and credit card payments from customers


For those who prefer not to apply for a small business loan, crowdfunding could also serve as a viable funding option. Crowdfunding involves raising relatively small amounts of capital for a business venture from a large pool of people such as supporters and donors.

In most cases, crowdfunding is an online process that can take on one of two forms: gift-based crowdfunding and investment crowdfunding. With gift-based crowdfunding, a small business owner will usually offer some form of incentive in exchange for a donation. On the other hand, investment crowdfunding typically requires a small business owner to provide a share of their business in exchange for funds. As a result, investment crowdfunding could be considered a form of equity financing.


  • Lower financial risk due to informal funding
  • Business funds are provided from multiple sources
  • Crowdfunding can generate support for a business


  • Investment crowdfunding requires an exchange of equity
  • Crowdfunding requires time and money up front
  • Better suited for business-to-consumer (B2C) ventures

Term Loan

A term loan is the type of financing that comes to mind when most business owners think of a small business loan. Offering a lump sum of funds up front, term loans are generally repaid in installments over a repayment period (or “term,” hence the name) which can range from months to years.

Term loans can be adjusted to the needs of a business owner or self-employed professional, depending on the lender. Some lenders may offer short-term loans, which are helpful for more urgent needs like emergency expenses. Long-term loans can allow business owners to repay over more time and typically offer higher loan amounts which are useful for larger projects and business development needs.


  • Lump sum of money up front
  • Term options may be available to meet business needs
  • You know exactly what you’re responsible for paying when you apply


  • Must reapply for additional funds
  • Need to pay interest and additional fees
  • Some lenders may have penalties for early repayment

Business Line of Credit

Similar to a business credit card, a business line of credit offers revolving access to funds — which can provide business owners with working capital when needed. This type of funding is well suited for small businesses with seasonal changes in cash flow, since interest only accrues on the funds that are withdrawn. As the business owner repays their outstanding balance, they are able to withdraw more funds up to their credit limit.

One of the key differences between a business line of credit and a business credit card — as well as a traditional small business loan — is that they generally offer more flexibility. With a business line of credit, you likely won’t need to keep track of minimum monthly payments, and you can repay your outstanding balance anytime you like, depending on the lender.


  • Ongoing access to small business funding
  • Greater flexibility with repayments
  • Interest only applies to withdrawn funds


  • May charge draw or maintenance fees, depending on the lender
  • Credit line increase may not be available
  • A line of credit may not allow for as much funding as you would get with other products like a term loan

Which small business funding options does OnDeck offer?

When it comes to small business funding — finding the right fit is critical. That’s why OnDeck offers more than one type of financing to provide you with flexible options that can meet your unique business needs.

If you’re looking for a lump sum of funds for a one-time expense, an OnDeck Term Loan can offer:

  • Loan amounts of $5K-$250K
  • Repayment terms up to 24 months
  • Automatic daily or weekly payments

Or, if you need quick, ongoing access to capital for your ever-changing business needs, an OnDeck Business Line of Credit can provide you with:

  • Revolving credit from $6K-$100K
  • 12-month repayment terms that reset after each withdrawal
  • Automatic weekly payments

Remember, deciding on small business financing is an important decision, so you should always compare lenders and products to find the one that best fits your financial situation and needs. If you ever have any questions, our dedicated, U.S.-based advisors are here to help you every step of the way.

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