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What You Need To Know about Small Business Funding


Anyone who's owned a small business knows that while passion and a solid business plan are necessary for success, it's hard to get started without capital. Small-business funding isn't what it used to be—with banks being more cautious about lending than in the past, the traditional method of going to your bank with shoeboxes full of financial documents and projections may not suffice anymore. Financing your vision increasingly requires creativity and research. Here are four alternative options to keep in mind when navigating the small-business funding landscape.

The U.S. Small Business Administration (SBA)

The U.S. Small Business Administration is a useful resource for all facets of small business ownership, including raising capital. While the SBA doesn't provide direct loans to small-business owners, they set guidelines for their lending partners and provide several programs to assist in small business funding — whether it's facilitating a loan through a third party lender, securing a bond, or helping find venture capital. The SBA also puts a repayment guarantee on a portion of all the loans they facilitate, making it easier to get funding for small businesses that are not in strong enough financial standing to qualify for a traditional bank loan.

When it comes to getting a business started, or expanding an existing business, the SBA offers a 7(a) loan program, Certified Development Company (CDC) 504 program, and a microloan program. In addition, the SBA offers disaster loans, export assistance loans, veteran and military community loans, and special purpose loans. Visit a SBA-participating lending institution to find out more, and complete the SBA loan checklist  to apply.

Credit Unions

Credit unions are increasingly a great asset for small business owners. Because credit unions are smaller and more community-oriented than big banks, they may be more willing to lend to up-and-coming entrepreneurs. According to Entrepreneur magazine, the average size of business-related loans issued by credit unions is $212,000, with the small business owner being a credit union member in nearly all cases.


Websites like Kickstarter and Indiegogo use a crowdsourcing approach to get projects and small businesses off the ground. It works like this: an entrepreneur or artist campaigns a project or business plan to the masses with hopes of donations and investments. According to Massolution, crowdfunding platforms raised $2.7 billion, and successfully funded more than 1 million campaigns in 2012. A Mint.com article reports that because it's still a new form of funding, the laws that govern crowdfunding are still being worked out.

Family and Friends

When it comes to being a small-business owner, there's no one else that will support that dream like your family and friends. According to this Forbes article, borrowing from family or friends should always be treated like a professional exchange—consider working out an interest rate and repayment schedule before receiving funds.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.