It takes money to make money. But where can businesses access the funding to help them grow?

There are many funding options available to small businesses today, each with their own benefits. But with so many to choose from, how do you know what your business needs?

Here’s a brief look of the most common financing alternatives, how they work and some of the potential benefits they can deliver.

Grants

• Business grants
  
• Competitions

Debt (loans)

• Term loan
  
• Line of credit/credit card

Equity finance (investors)

• Equity crowdfunding
  
• Angel investors
  
• Venture capital
  
• Incubators and accelerators
  
  

Now let’s review what each funding option entails.

Business Grants

Running a small business is tough and at some point, there is a good chance you will need to seek additional funding from an outside source.

• Business grants offer a financial boost and can also deliver access to business mentors for the successful applicants.
  
  
• The grant is a sum of free money given to a business to be used toward very specific business functions.
  
  
• Grants do not have to be repaid; however, small businesses must often meet specific criteria to receive a grant, and they must use the money for reasons specified by the granter.
  

What is the difference between a grant and a loan?

The biggest difference between a grant and a loan is that a loan must be repaid, while a grant does not.

When starting out, or mid-growth, cash-flow challenges can make loan repayments difficult for businesses. In situations like these, a grant can offer a payment-free alternative.

 Common grants include:

• Federal business grants
  
  
• State business grants
  
  
• Local business grants
  
  
• Small business relief grants
  
  
• Research business grants
  
  
• Specialty business grants
  
  

Whether you’re applying for a government or private grant, they are extremely competitive and therefore often more difficult to secure. However, the potential rewards can make a big difference to your business momentum.

Next, business loans.

Loans

Getting a business loan is one of the most common ways to finance a business.

Types of loans

There are a number of loans available to businesses, but the most common are: 

• Term loans
  
  
• Lines of credit

What is a term loan?

A term loan is for a specific amount. You can borrow a lump sum, which you will need to repay with regular, fixed repayments over a set period of time.

Acting as core debt in your business, term loans are commonly taken out for: 

• Startup costs
  
  
• Business mortgages
  
  
• Commercial property loans
  
  
• Asset loans

What is a line of credit?

A line of credit is a flexible finance arrangement that is often used for short-term finance. The two types of credit financing are:

• Revolving credit
  
  
• Line of credit

Revolving credit

Similar to a credit card, revolving credit gives you access to credit to spend in whatever way you want, however you cannot go over the credit limit. Useful for businesses wanting to fund expansion and as a buffer to prevent cash flow problems.

Line of credit

Unlike revolving credit, a business line of credit is often closed once the credit amount is spent. They are beneficial if you need a financial cushion when cash flow is unpredictable or you are seasonal.

Equity funding

When you invest either your own or someone else's money in your business, it is known as equity funding. The different forms this funding can take include: 

• Equity crowdfunding
  Allows you to raise funds from the public in exchange for unlisted shares (equity) in the business. This is generally for consumer products or services (not B2B). 
  
  
• Angel investors
  Angels are wealthy individuals who invest their own money in exchange for a share of the business. They generally want to be involved in business decisions and may want to cash out after a few years. 
  
  
• Venture capital
  Professional investment groups that invest their clients’ money in exchange for a substantial share of the business. 
  
  
• Incubators and accelerators
  Development schemes to build and boost small businesses.
  
  

Remember, as investors, they are essentially “buying” into your business, so there may be extra restrictions to consider.

Funding that suits your needs

There are many options to explore if you are wanting to secure funding. To ensure you make the right decision, do research, understand what your business needs now and in the near future and find a right fit for you.

To learn more about how we can support your business goals, read more helpful resources at Small Business Center.