Small Business Funding 101: Everything You Need to Know

Last Updated on November 30, 2018

What is small business funding, and how does it work? Could your small business benefit from borrowing extra capital?

Read on to learn everything you need to know about small business funding!

small business funding 101, what is it, and how does it work? Man wants to know how to use small business financing to grow his business

Small Business Funding 101
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What is Small Business Funding?

Small business funding is the process of borrowing capital from business loans and lines of credit exclusively provided by lenders and financing companies for small business use.

There are a wide variety of small business financing options, each with their own individual list of terms and capital amounts provided. Each financing option is designed to help small business owners from virtually any industry accomplish their specific funding goals in unique ways.

Common examples of small business funding options include:

The terms of each financing option can be customized to match the needs of small business owners.

For a full list of small business funding options, click the link here: Full List of Small Business Financing Products

How Does Small Business Funding Work?

First, a small business owner searches for a lender or business financing company that offers financing options exclusively for small businesses.

The business owner then enters a discussion with the lender or company to discuss:

  • The amount of capital they need to borrow
  • The terms they are looking for in their ideal financing option
  • How they plan to use their capital to grow their small business
  • The financial status of their business, including their yearly gross sales, FICO, and time in business

The financing lender or company will then try to qualify the small business owner with the financing option of their choice. If they do not get approved, they will suggest a different financing option that may suit their needs equally if not better, or refer the business owner to another source of funding.

Once approved, and the funding process is complete, the business owner will be able to access their borrowed capital to use as intended. The ease at which small business owners get approved, and how long it takes for the funding process to complete depends on three factors, including:

  • The approval requirements of a specific lender or financing company (ease of approval will be impacted most by the qualification requirements set by each individual lender and company)
  • The specific small business funding product applied for (different business loans and lines of credit have their own list of requirements)
  • How the lender or financing company processes funds (some may offer expedited approval and funding, while others may take significantly longer)

Similar to paying off a personal loan, any capital borrowed will eventually need to be payed off.

However, small business funding is different from personal borrowing, as each business financing option is customized to offer a different repayment experience, giving small business owners greater flexibility to choose how and when they pay off borrowed capital.

For example, small business term loans are repaid at set intervals, with set rates.

Other options including merchant cash advances, revolving business lines of credit, merchant cash advances and other certain types of small business loans come with more flexible repayment cycles and interest rates that fluctuate to make repayment more convenient for small business owners.

What is Alternative Small Business Funding?

Alternative small business funding is a method of financing created to make quality financing more easily accessible for small business owners that struggle to acquire the proper funding they request through traditional methods of financing, such as banks.

Created in the financial crisis of the early 2000’s, during a time when traditional lenders were failing to keep small businesses afloat, alternative funding has provided a major boost to the economy by providing the financing small businesses needed when banks failed to help.

Not held back by the same regulations and standards as banks, alternative business financing lenders and companies can provide a much wider variety of financing options for small businesses that traditional financing cannot provide. These alternative business financing options are often much more convenient for small business owners, providing loans and lines of credit with terms that better match their needs.

This in turn allows for much lower and more convenient qualification requirements for approval, and a significantly reduced time to funding.

Why Small Businesses Need Funding

When presented with an opportunity to grow, or faced with a challenge that needs immediate fixing, small business owners need to act fast.

In times when the current state of cash flow is problematic, small business funding is oftentimes the best method of taking immediate action.

There are limitless ways to use small business financing options to grow, and solve any business need for any industry including:

  • Increase, or bridge gaps in working capital
  • Managing payroll
  • Easily pay bills and vendors
  • Hire staff
  • Prepare for seasonal changes
  • Take on a new opportunity to grow, expand or relocate
  • Financing new or upgraded equipment
  • Increase your inventory and purchase materials
  • Purchasing, expanding or refinancing your building

Where to Get Small Business Funding

Small business funding can be provided by multiple different sources including banks, direct lenders, merchant processors, CPAs, SBA lenders and brokers, and alternative financing companies.

Finding the best source of capital to match your business needs can be a long and arduous process. Depending on where you choose to borrow from, you can run the risks of:

  • Overborrowing
  • Overspending
  • Waiting too long to receive funds
  • Wasting time waiting to see if you qualify, only to be denied
  • Obtaining financing with a higher cost of capital than necessary
  • Unnecessarily leveraging your personal and real estate assets as collateral
  • Acquiring a financing product with terms that don’t match your specific needs
  • Settling into lengthy repayment, hindering your business’s ability to grow for many years
  • Being rejected for the funding option you need, although you may qualify for it through a different source

And much more. Fortunately, alternative financing companies like National Business Capital (NBC) have emerged in recent years to eliminate these risks.

When you apply for financing through NBC, they do the searching for you, eliminating wait times, and simplifying the approval process.

Through their connections within their exclusive global marketplace, they match your application with the perfect specialized lender that provides offers you qualify for, and with terms that perfectly match your own.

What’s more, NBC prepares all the necessary paperwork for the funding process to complete, and through technology cuts the approval and funding process down to hours, instead of days.

How to Qualify for Small Business Financing?

Qualifying for small business funding depends on two major factors:

  1. Where you apply for small business funding,
  2. And what specific financing product you apply for.

Qualifying for small business funding options such as SBA loans through traditional means is typically much more difficult, due to standardized banking restrictions that require many years in business, stellar credit, and impressive annual gross sales.

Alternative business financing, as stated earlier, was created to help businesses that otherwise wouldn’t qualify for financing get approved. They offer a large variety of small business loans and lines of credit available that banks cannot provide, with qualification requirements that are much easier to meet.

The approval requirements for alternative small business loans differ depending on which financing option you apply for.

Some, such as certain small business loans, revolving business lines of credit, merchant cash advances, business equipment loans, startup business loans, invoice factoring, and accounts receivable lines of credit can be obtained by small business owners with:

  • Bad credit,
  • Limited active time business,
  • Low annual gross sales,
  • Judgments and tax liens,
  • And bankruptcies.

Traditional business financing does not offer financing options that help small business owners with these financial issues.

What’s more, alternative financing provided by lenders and companies like NBC offers the ability for small business owners to borrow capital without having to leverage any assets as collateral.

What is Unsecured Small Business Funding?

Unsecured small business funding is the process of borrowing capital from a lender or financing company for small business use, without leveraging any assets as collateral in case of foreclosure.

Typically – especially among banks and traditional lenders – lenders and brokers will require that the borrower offer some sort of asset as collateral in return for any capital they provide, which the lender or broker will be able to obtain in the case of foreclosure.

This “security” ensures that any funds provided can be easily replaced if the borrower fails to pay off their capital lended.

The term “unsecured” refers to the fact that the funds borrowed isn’t “secured” by any collateral. While this often results in less desirable terms among traditional lenders, alternative financing companies like NBC offer unsecured financing with equally if not more preferable terms than those offered by secured financing.

Alternative small business funding also offers options that don’t require any personal assets to be leveraged. Instead, collateral may take other more convenient forms in exchange for capital.

For example, equipment loans don’t require any personal or real estate assets. Instead, the equipment itself will be leveraged as collateral if the borrower cannot repay the funds borrowed to acquire it.

For more information on unsecured small business funding, click the link here: Unsecured Business Loans: Everything You Need to Know

Small Business Funding for Veterans, Women and Minorities

There are a range of small business funding options that specialize in providing easier access to capital for demographics that are statistically shown to have a more difficult time obtaining financing through traditional means.

90% of all applicants are approved for these exclusive types of financing options, regardless of FICO and extensive financial histories:

Where to Apply for Small Business Funding

If alternative small business funding seems like the best option to grow your business, call (877) 482-3008 to tell a live NBC representative the type of financing you need.

We will match you with the best offer available in the global marketplace, and help expedite and streamline the funding process from start to finish.

To apply for small business funding right away, fill out this 60-second web app, and NBC representatives will get started working on your application immediately to supply you with funds in as little as 24 hours.

National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!


About the Author, Megan Capobianco

Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital & Services and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.