Different Types of Business Funding

Securing the right type of funding is a pivotal step in growing and sustaining a successful business. With numerous options available, it can be overwhelming to determine which funding avenue aligns best with your goals and needs. 

Let’s take a look at the most common options for funding your small business. 

Small Business Loans  

Traditional small business loans are typically offered directly by banks or financial institutions and may require substantial collateral, good credit history, and a solid business plan to qualify. They can vary widely in terms of amount, interest rates, and repayment terms. 

SBA Loans, on the other hand, are government-backed loans designed specifically to help small businesses. They are facilitated by the Small Business Administration, which guarantees a portion of the loan to reduce the lender’s risk. This backing makes SBA loans accessible for businesses that might struggle with obtaining traditional financing due to reasons like insufficient collateral or a limited credit history. 

Revenue Based Financing

If your business sees a lot of credit card transactions and needs quick access to cash, a revenue based financing might be the way to go.  
This is an advance against your future sales, repaid via a portion of daily credit card revenue. It’s a useful option for fast funding without the need for traditional collateral or a high credit score. 

Line of Credit 

A line of credit is a flexible loan from a bank or financial institution that provides a set amount of money that you can draw from as needed. You only pay interest on the amount you use, not the entire credit limit. 

The primary advantage of a line of credit is its flexibility. It allows you to manage your cash flow more effectively by providing quick access to funds for short-term needs or emergencies. It’s like having a financial safety net that you can rely on without the burden of long-term debt. 

Term Loans 

A term loan is a lump sum of capital provided by a bank or financial institution that is repaid over a set period with fixed or variable interest rates. These loans can be short-term or long-term, depending on the needs of the business. 

Term loans are ideal for significant, one-time investments in your business, such as expanding operations, purchasing large equipment, or other major capital expenditures. The fixed repayment schedule can help with predictable financial planning, ensuring you can align your business growth with your repayment capabilities. 

Equity Mortgage Products 

Equity mortgage products are loans secured by the equity in your business or real estate. These loans use the equity value as collateral, which can provide larger loan amounts or better terms compared to unsecured loans. 

Using equity mortgage products can enable businesses to access substantial funding by leveraging the value of owned assets. This can be particularly useful for funding expansion projects or significant capital investments without needing to dilute ownership or incur high-interest unsecured debt. 

Account Receivable Financing 

Account receivable financing, also known as factoring, involves selling your outstanding invoices to a financing company at a discount. This provides immediate cash flow instead of waiting for customers to pay their invoices. 

This type of financing is invaluable for businesses with long payment cycles or those needing to quickly improve their cash flow. It allows you to access funds tied up in receivables and reinvest them into your business operations, reducing the risk of cash flow shortages.  

Equipment Financing 

Equipment financing is a loan used to purchase business-related equipment, where the equipment itself serves as collateral for the loan. This type of financing can cover anything from machinery to office technology. 

Equipment financing enables businesses to acquire necessary equipment without depleting their cash reserves. By spreading the cost over time, businesses can maintain their cash flow while benefiting from the immediate use of the equipment, which can enhance productivity and operational efficiency.  

Inventory Financing 

Inventory financing is a loan or line of credit obtained by a business to purchase inventory. The inventory itself serves as collateral for the loan, providing funds to buy goods that will be sold later. 

This type of financing is essential for businesses that need to stock up on inventory before peak sales periods. It allows businesses to purchase necessary stock without straining their cash flow, ensuring they are prepared to meet customer demand and capitalize on sales opportunities. 

Invoice Factoring 

Invoice factoring is a financial transaction where a business sells its accounts receivable to a third party (a factor) at a discount. The factor then collects the receivables from the business’s customers. 

This service is particularly useful for businesses needing quick cash flow to meet immediate needs. Unlike traditional loans, invoice factoring does not add debt to your balance sheet, making it an effective way to manage cash flow without increasing financial liabilities. 

How to Get a Small Business Loan:

While we understand that choosing from different types of funding isn’t easy, our experts at Capixa can give you some extra tips on how to get a small business loan and how our application process works. 

Here are a few useful tips on how to secure a small business loan: 

Understand and Research Loans 

Begin by exploring the various types of loans available to small businesses. Websites like the Small Business Administration (SBA) offer valuable resources and can be great starting points.  

Focus on learning about different loan products, their purposes, and what lenders typically require from businesses. This knowledge is key to navigating the loan process successfully. 

Find the Right Product For You 

Identify the type of loan that aligns with your business needs, whether for operational cash flow, expansion, or equipment purchase.  

If you’re in a specialized sector, such as technology or manufacturing, consider industry-specific loans that might offer better terms. Use tools like loan calculators and comparison websites to narrow down your options and create a shortlist of suitable loans. 

Prepare Your Application 

Preparation is crucial when applying for a business loan. Gather necessary documents including a detailed business plan, financial statements, tax returns, and any required legal documentation.  

Your business plan should clearly detail your business model, the market potential, and how you intend to utilize the loan funds. Ensure that all documents are current and accurately reflect your business’s financial health.  

Write a Compelling Loan Application 

Your loan application should effectively communicate your business’s strengths and financial needs. Be clear about how the loan will support your business goals and demonstrate your plan for repayment.  

If crafting strong proposals isn’t your thing, consider applying for a loan at Capixa, as we use our business knowledge and a personalized approach to lending to provide entrepreneurs with the capital they require.  

Our application process is quick and takes just a few minutes to complete. You’ll receive a response from us within an hour to address any questions and gather the necessary documents. Once we have all the required information, we’ll present you with your options within one business day.

Secure Funding for Your Business With Capixa

Secure the funding your small business needs with us. We specialize at combining expert financial solutions with a human touch to cater all your needs.  

Whether you’re looking for a merchant cash advance or a more traditional small business loan, our team is here to support your business’s growth with quick, secure, and flexible funding options. 

Here’s how to get started: 

Submit your application: Kick off your journey by submitting a free online application. It’s quick, doesn’t affect your personal credit, and places you under no obligation to accept our offers. 

Set up a consultation: Connect with one of our dedicated account managers. They’ll reach out within an hour to dive deep into your business’s needs, discuss necessary documentation, and customize terms that serve your goals effectively. 

Wait for review: Relax while we efficiently review your application. Expect to receive an offer within just 6-12 hours. 

Receive your funding: Secure the capital you need and come back anytime additional funding is required to capitalize on new opportunities. 

Schedule a consultation today and take the first step towards empowering your business with the funding it needs.