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Best Funding Options for SMBs

August 23, 2022

What are the best options to fund your small business?

Starting a small business can be a daunting task. There are so many things to think about - from the initial planning stages to marketing your business and everything in between. One of the most important decisions you will make is how to fund your business. There are a variety of options available, and it can be difficult to decide which one is right for you. In this blog post, we will discuss the pros and cons of some of the most popular funding methods for small businesses.

Bank/Credit Union loans

When you need to borrow money, one option is to get a loan from a credit union or a bank. A business loan is when the financial institution lends you money that you agree to pay back, with interest. Business owners use loans for a variety of purposes, including buying a car, starting a business, or consolidating debt. There are two main types of business loans: secured and unsecured. A secured loan is supported by collateral, such as fixed assets, accounts receivable, or equipment. This means that if you fail to repay the loan, the financial institution can seize the collateral. An unsecured loan does not require collateral, so it is riskier for the financial institution. As a result, unsecured loans often have higher interest rates than secured loans. 


  • Lower interest rates
  • Can be easier to obtain than other types of financing


  • Difficult to repay if your business is not successful
  • Strict repayment terms can be a problem if your business does not generate enough revenue
  • You may have to provide collateral, which you could lose if you cannot repay the loan.


SBA loans

Small Business Administration (SBA) loans are a type of financing available to small businesses through the Small Business Administration, a federal government agency. SBA loans are attractive to small businesses because they typically have low-interest rates and longer repayment terms. In addition, the SBA guarantees a portion of the loan, which makes it easier for small businesses to obtain financing. There are a number of diverse types of SBA loans available, each with its own specific requirements and terms. 


  • Backed by the government
  • Lower interest rates


  • Difficult to qualify for
  • Strict requirements


Money Market Account

A Money Market Account (MMA) is a type of savings account that typically pays higher interest rates than a traditional savings account. To qualify for an MMA, you usually need to maintain a higher balance than you would in a regular savings account. MMAs are FDIC & NCUA insured, which means your money is insured up to $250,000 if the bank or credit union fails. Just in case you’re considering a Money Market account for your business, click here to learn more about earning 1.5% APY* on a Smart Business Money Market account.


  • Higher interest rates than a regular savings account
  • Your money is NCUA or FDIC insured up to $250,000


  • You usually need to maintain a high balance to qualify for an MMA
  • The interest rate may be variable, which means it could go down as well as up



Another excellent option for funding small businesses is applying for a grant. There are many diverse types of grants available, and they can be used for a variety of purposes. The most important thing to remember is that grants are not loans - you do not have to repay the money. This can be a great advantage, as it means you can use the money to grow your business without having to worry about repaying a loan. A couple of diverse types of grants include:

Federal small-business grants

Federal small business grants are offered by the government. These grants are usually competitive, and you will need to have a strong business plan to be successful.

State and regional small-business grants

State-level small business grants offered by the state government. These types of grants can be less competitive than federal grants, but they can still be difficult to obtain.


  • You do not have to repay the money
  • Can be used for a variety of purposes


  • Can be incredibly competitive to obtain
  • Requires a strong business plan


Peer-to-Peer lending

Peer-to-peer lending is a form of lending in which individuals borrow and lend money to each other without the use of a traditional financial institution such as a bank. In recent years, peer-to-peer lending has become an increasingly popular option for those looking for an alternative to traditional lenders. There are a number of advantages to peer-to-peer lending, including the ability to secure loans with lower interest rates and the flexibility to tailor loan terms to the borrower's needs. Furthermore, peer-to-peer lending platforms typically have lower barriers to entry than traditional banks, making it easier for borrowers to access the capital they need. Although some risks are associated with peer-to-peer lending, it can be a viable option for those looking for a more flexible and affordable way to borrow money.


  • Loans can be obtained with lower interest rates
  • Loan terms can be tailored to the borrower's needs
  • Lower barriers to entry than traditional banks
  • More flexible than traditional lenders


  • It may not be suitable for those who need a large loan
  • The borrower's credit score may be a factor in determining the interest rate


Angel Investment

Angel investors are individuals who provide capital for startup companies in exchange for equity. This type of funding is an important source of capital for many small businesses, as it allows them to get their business off the ground without taking on debt. Angel investors typically have a deep understanding of the entrepreneurial process, and they can provide valuable mentorship and guidance to startups. In addition, angel investment firms often have a network of contacts that can help a young company to succeed.


  • Provides capital for startup companies
  • Does not require the company to take on debt
  • Angel investors typically have a deep understanding of the entrepreneurial process
  • Can provide valuable mentorship and guidance to startups
  • Often have a network of contacts


  • Angel investors will own a portion of your company
  • You may have to give up some control over how the who controls the company



Crowdfunding is a popular funding method for small businesses. It involves raising money from a large number of people, typically through an online platform. There are a variety of crowdfunding platforms available, and each one has its own rules and regulations. Crowdfunding can be a terrific way to raise money for your business, but there are also some drawbacks to consider.


  • Can be a terrific way to raise money quickly
  • Allows you to tap into a large pool of potential investors
  • Can be a good marketing tool to generate buzz for your business


  • Requires a lot of work to set up and promote your campaign
  • You may not reach your funding goal
  • There is no guarantee that people will invest in your business


Venture Capital

Venture capital is a type of private equity funding that is typically used to finance early-stage businesses with high growth potential. Venture capitalists are typically looking for companies that have the potential to generate significant returns through an initial public offering (IPO) or by selling the company. In exchange for their investment, venture capitalists typically receive a minority equity stake in the company.

Venture capital funding can be used for a variety of purposes, including working capital, research and development, and marketing. However, it is important to note that venture capitalists typically want to see a return on their investment within three to five years. As such, companies seeking venture capital funding need to have a clear plan for how they will generate profitability within this time frame.


  • Can provide significant funding for early-stage businesses
  • Can be used for a variety of purposes


  • Venture capitalists typically want to see a return on their investment.
  • Companies seeking venture capital funding need to have a clear plan for profitability



Bootstrapping is a type of funding where entrepreneurs use their own personal resources to finance their business venture. This could include savings, investments, and even credit cards. Bootstrapping is often associated with high-growth startups that have limited access to outside capital. 


  • Gives entrepreneurs complete control over their business
  • Forces entrepreneurs to be creative and resourceful
  • Can pay off handsomely if the business is successful


  • Is a risky strategy
  • Requires a lot of personal resources
  • Limited access to outside capital



There is no single answer to the question of how to best fund your small business. The right method for you will depend on a number of factors, including the amount of money you need, how much control you want to maintain over your company, and the level of risk you are willing to take. However, some methods of funding are more popular than others, and each has its own set of pros and cons.

Weighing the pros and cons of each option will help you to decide which one is right for you.