With the recent tech boom, there has been an increase in many startups that need funding to grow. When these businesses are unable to raise enough capital from banks, they turn to venture capitalists for the money. Businesses cannot always rely on venture capitalists, especially when they already have their own funding or a well-established business model. With the many choices out there, how do you know which one to select? Let’s take a look at some of the alternatives.
1. SBA Loans
SBA financing is designed for businesses that have a U.S based company, have a business plan, and are an added benefit to the community. SBA loans are available for any business that is engaged in manufacturing, distribution, or serving the public sector, as well as aerospace and defense industries in federally-supported research and development programs. These moneymaking options are tied to the size of your business (new or existing) and where you do your work located.
Under the SBA business loan program, you can use your newly acquired funds for almost anything, including expanding your current operation, buying new equipment, financing a new business endeavor, or purchasing a second home. There are four different loan levels:
- Early Stage Small Business
- Small Business
- Business Opportunity
- Multi-Unit Property Loan
Pros
Unlike an SBA loan, you can obtain a conventional bank loan without having to do all the legwork on getting a business plan approved and showing that you have a good credit score.
Cons
The drawback is that SBA loans have higher interest rates and longer repayment terms.
2. Merchant Cash Advance
Merchant Cash Advance (MCA) is like taking out a small business loan, but you don’t have to worry about applying for a loan or putting property up as collateral. MCA is a short-term business loan that ranges from a few thousand dollars to hundreds of thousands. You pay back the funds received over time, usually within 12 months.
You can use MCA funds to take care of your current business needs like employee payroll or debt consolidation, which will help you increase profits. As long as you have enough to pay your regular expenses, you can get this type of lending without having to apply for a loan, show your financial records, or provide collateral.
Pros
Remember, MCA is a short-term loan, and the funds will be repaid over time. You can use the funds for any purpose (not just for business purposes), such as employee payroll or debt consolidation. You can use MCA to take care of your current business needs like employee payroll or debt consolidation, which will help you increase profits.
Cons
You will have to pay back the funds received over time, usually within 12 months.
3. Personal Capital Line of Credit (PCL)
A Personal Capital Line of Credit (PCL) is a revolving credit option designed for businesses that want flexible access to short-term funding. Unlike traditional loans, a PCL allows you to draw funds as needed rather than taking out a lump sum.
Pros
Use funds for almost anything, from business growth to paying off debt
Only repay what you borrow, when you borrow it
No need to provide financial records, collateral, or go through a full loan application
Lower interest rates than many other short-term options
Cons
You’ll still need to repay the borrowed funds, typically within 12 months
Best suited for operating expenses, not large capital investments
Can lead to overuse if not managed carefully
4. Factoring Invoice Purchase
Factoring invoice purchase allows a business to sell its outstanding invoices in exchange for immediate working capital. It’s especially useful in industries with high volumes of receivables and delayed payment cycles.
Pros
Immediate access to cash without taking on debt
No collateral or detailed financial proof required
Flexible repayment periods — financing can extend up to 3 years
Helps build credibility with future clients through consistent cash flow
Cons
Most factoring firms expect to purchase all or most of your outstanding invoices
You must submit invoices regularly and keep records up to date
Not as widely adopted as other forms of business lending
5. Non-Dilutive Capital
Non-dilutive capital is an equity investment in your business. If a third party investor provides you with capital, it won’t have an impact on the amount of money you earn or the number of contracts you sign. Unlike traditional business loans that require collateral, non-dilutive capital is not tied to the amount of money generated by your business. Only the equity investors can access the cash and pay their own personal expenses with the money they invest.
This type of business loan is ideal for businesses that receive a large amount of business through word-of-mouth. The third party investors may consider your company as a good investment opportunity because it is one of the few businesses in the market with an established reputation.
Pros
The best thing about a non-dilutive capital investment is that you will be able to keep a significant amount of your money. You only need to provide a share of your profits which means you can keep more money to use for growing your business. This type of lending option doesn’t usually have a fixed rate.
Cons
The biggest disadvantage of this type of loan is that it is not guaranteed. You may certainly raise some sales and signed contracts in the short run, but the overall impact on your accounts receivable will be much less than if you were able to get traditional personal loans. An equity investor has a chance to make a return on their investment in the long run, so they will want to see the company’s business grow and profit level increase before they pay back the money.
Another disadvantage of this type of lending is that you need to provide sales and customer information to the investors. It could be difficult for small business owner to find investors willing to invest in their business because most people won’t invest in a brand-new company.
In conclusion, there are many different types of business loans that you can get if you’re in need of funds for growing your business without having to go through the whole financial process. Knowing the pros and cons of each lending option is important when you consider applying for a loan from a bank or a lending service provider.
We respect your digital space
We use cookies (the digital kind) to personalize your experience, improve performance, and understand what matters most to you. You’re in control—feel free to adjust your preferences. To learn more, please visit our Cookie Policy.