Funding Your Business: Your Options and How to Choose

Self-funding and reinvested revenue

Personal savings and reinvested profit cost nothing in interest and keep full ownership, but they limit how fast you can grow.

Most small businesses begin with owner money. As the business earns, profits can be reinvested into inventory, tools or marketing. This is called bootstrapping. See our article on bootstrapping a small business.

The trade-off is speed. If an opportunity is worth more than you can fund from cash flow, waiting may cost you the opportunity. Also avoid draining personal savings to the point that one slow month becomes a personal emergency. Keep a cash reserve; see how to build a cash reserve.

Debt options for operating businesses

Working capital, revenue-based financing, term loans, lines of credit, equipment financing and SBA loans each suit different needs and timelines.

Here is how the main products differ:

• Working capital. Lump sum for operating needs, repaid over a short period, funded quickly.
• Revenue-based financing. Repayment rises and falls with sales.
• Term loans. Fixed payments over a set term, typically funded in one to five days.
• Business line of credit. Draw, repay and draw again, typically in 24 to 72 hours.
• Equipment financing. Funds machinery or vehicles, with the equipment as security, typically in two to seven days.
• SBA loans. Slower process, often the lowest cost.

Products that sound like funding but work differently

Business credit cards, invoice factoring and commercial real estate mortgages are valid tools, but they are not the same as term loans or working capital.

Three common alternatives deserve a plain explanation. Business credit cards give a revolving limit and rewards, and work well for small, repeat purchases you pay off monthly, but carry high rates if you carry a balance. Invoice factoring sells your unpaid invoices at a discount for faster cash and fits businesses with large receivables from other businesses. Commercial real estate mortgages finance property with long terms and require a down payment and appraisal.

ROI Funder does not place these. If your need is operating cash, the closest fit is usually working capital or a line of credit. If you need a property purchase, a bank or SBA 504 lender is the better route. Compare more in the alternative financing options guide.

Outside investors and what they cost

Investors give money in exchange for ownership or a share of profits. There are no monthly payments, but you give up control and a share of the upside.

Angel investors, venture capital and crowdfunding suit businesses with high growth potential and a plan for a large exit. Most main-street businesses, such as restaurants, contractors and shops, are not a fit for venture capital, because investors need a very large return.

If you consider this path, understand the trade: equity does not require repayment, but it permanently shares ownership. Read capital, equity and debt and how to find investors before you decide.

Grants and programs: realistic expectations

Grants exist but are limited, competitive and often tied to specific purposes. Do not plan operations around a grant you have not been awarded.

Some grants support specific groups or industries, and some programs provide technical help rather than cash. The SBA lists programs on SBA.gov, and state economic development agencies run their own. Treat grants as a bonus while you line up funding you can count on. Our guide to the SBA grant guide explains what is and is not available.

How to choose: four questions

Ask what the money is for, how fast you need it, how much payment the business can carry and what you will give up.

1. Purpose. Equipment, inventory, hiring, marketing, working capital or a project?
2. Speed. Do you need it this week or can you wait for a slower, cheaper option?
3. Payment. What monthly-equivalent payment does cash flow support, even in a slow month?
4. Cost. What is the total repayment, and what profit does the money produce?

See our guide to which funding fits your business, and funding strategies for ways to match term to need.

What funders look at and how to apply

Funders look at time in business, monthly revenue, credit and bank statements. Complete files get faster answers.

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. The application is online, takes a few minutes and uses a soft credit pull, so applying does not affect your credit score. A complete file is the application plus three months of business bank statements, and approved complete files can be funded the same business day. Amounts run from $5,000 to $5,000,000 in all 50 states.

We work with a network of funders and match each file to those that fit. We start from your payback math, then show true cost, payback period and monthly-equivalent payments before you sign. You have no obligation to accept an offer. When you are ready, start your application.