Getting finance for a business comes down to matching your company’s stage, revenue, and credit profile to the right funding source. A startup with no revenue faces a completely different path than an established business pulling in $500,000 a year. Here’s how each option works, what you’ll need to qualify, and how to put together a strong application.
Traditional Bank Loans and SBA Loans
Bank term loans and lines of credit remain the most common way established businesses fund growth, equipment purchases, or working capital. Interest rates are typically lower than alternative lenders, but qualification standards are higher. Most approved applicants have personal credit scores of 700 or above, at least $100,000 in annual revenue, and two or more years of operating history.
If you don’t qualify for a conventional bank loan on your own, SBA loans act as a middle ground. The SBA doesn’t lend money directly. Instead, it guarantees a portion of the loan made by a participating bank, which reduces the lender’s risk and makes approval more likely for smaller or newer businesses. The flagship 7(a) loan program offers up to $5 million for purposes ranging from working capital to real estate purchases. Interest rate caps on 7(a) loans are tied to a base rate (usually the prime rate) plus a spread that depends on loan size. For loans above $350,000, the spread can’t exceed 3 percentage points over the base rate. Smaller loans allow slightly higher spreads.
SBA loans involve more paperwork than a standard bank loan. You’ll need to fill out SBA-specific forms, including the Borrower Information Form (Form 1919) and a Personal Finance Statement (Form 413). The process can take several weeks to a few months from application to funding, so plan ahead if you’re on a deadline.
Online and Alternative Lenders
Online lenders fill a gap for businesses that can’t meet traditional bank standards. They tend to approve borrowers with lower credit scores, shorter operating histories, and smaller revenues. About one in five approved borrowers in a recent NerdWallet study had credit scores below 660, though those borrowers typically compensated with stronger revenue (80% reported at least $500,000 annually) or longer track records (71% had five or more years in business).
The trade-off is cost. Online lenders charge higher interest rates and may use factor rates instead of APR, which means you pay a fixed fee on the total amount borrowed rather than interest that decreases as you pay down the balance. A factor rate of 1.3 on a $50,000 loan means you repay $65,000 regardless of how quickly you pay it off. Always convert any quoted rate into a total dollar cost so you can compare options accurately.
Funding speed is where online lenders shine. Many can approve and deposit funds within a few business days, compared to weeks or months for banks and SBA lenders.
Revenue-Based Financing
Revenue-based financing (RBF) is designed for businesses with steady monthly income but limited assets or collateral. Instead of fixed monthly payments, you repay a percentage of your monthly revenue until you’ve paid back the borrowed amount plus a fee. In strong months, you pay more. In slow months, you pay less. Repayment is typically structured over three to five years.
The biggest advantage of RBF is that it doesn’t require you to give up any ownership in your company, and most providers don’t impose financial covenants like minimum cash reserves or net worth requirements. This makes it a practical option for e-commerce businesses, SaaS companies, or any operation with predictable recurring revenue. The downside is that the total cost of capital can be higher than a traditional loan, and you’ll need consistent revenue history to qualify.
Venture Debt
Venture debt is a loan product aimed at startups that have already raised venture capital. It’s typically used to extend a company’s runway between equity rounds without giving away a large ownership stake. Unlike revenue-based financing, venture debt comes with fixed monthly payments regardless of how the business performs.
There’s a catch: most venture debt lenders require warrants, which give the lender the right to purchase a small amount of equity at a set price. That means shareholders still experience some dilution, just less than a full equity round. Venture debt also comes with financial covenants, such as minimum liquidity ratios, that the company must maintain or risk defaulting. This option only makes sense if you already have institutional investors and need bridge capital, not as a first source of funding.
Equity Financing
Selling a stake in your company to investors is the primary path for startups that don’t yet have the revenue or credit profile to take on debt. Angel investors, who are typically individuals writing checks between $25,000 and $500,000, focus on early-stage companies. Venture capital firms invest larger amounts, usually starting at $1 million or more, and target businesses with high growth potential in technology, healthcare, or other scalable industries.
Equity financing requires no monthly payments and no collateral, but you give up a share of ownership and often some control over business decisions. Investors will want a seat at the table, whether that means a board position, voting rights, or approval authority on major financial decisions. This option works best when your business model needs significant upfront capital before it can generate revenue.
Federal Grants Are Narrow
Federal business grants sound appealing, but they’re far more limited than most people expect. The SBA does not provide grants for starting or expanding a typical business. SBA grants go to nonprofits, educational organizations, and resource partners that support entrepreneurship through training and counseling programs.
The main exception is the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, which fund companies engaged in scientific research and development. If your business is developing technology with commercial potential that also serves a federal research objective, these programs are worth exploring. For everyone else, grants are not a realistic primary funding strategy.
What Lenders Want to See
Regardless of which funding source you pursue, preparation makes a significant difference. Here’s what you should have ready before approaching any lender or investor:
- Personal and business tax returns from the most recent three years
- Financial statements: a current profit and loss statement, balance sheet, and cash flow statement
- Business bank statements covering at least the past 12 months
- A schedule of existing debts, including any commercial real estate loans, equipment financing, or outstanding credit lines
- Business formation documents: articles of incorporation, your EIN, operating agreement (for LLCs), and any relevant licenses or permits
- A business plan with an executive summary, company description, market research, product or service details, marketing strategy, and a specific funding request
- Collateral valuation if you’re applying for a secured loan
If your business is new, expect lenders to lean heavily on your personal credit score, personal bank statements, and your resume. A detailed business plan with realistic financial projections becomes especially important when you don’t have years of operating data to show.
Matching Funding to Your Stage
Your business stage narrows the realistic options quickly. A pre-revenue startup won’t qualify for a bank loan or revenue-based financing, so the path is equity investment, personal savings, or friends-and-family funding. A business with at least a year of operations and $100,000 or more in annual revenue can start exploring online lenders and, in some cases, SBA loans. Once you have several years of profitable history and a credit score above 700, traditional bank loans become accessible and offer the lowest borrowing costs.
Many business owners use a combination: an SBA loan for a large equipment purchase, a line of credit for working capital, and retained earnings for day-to-day operations. The goal isn’t to find one perfect source but to layer funding types in a way that keeps your total cost of capital low while preserving enough cash flow to operate comfortably.