Gateway Commercial Finance

Business Financing Options

You know you need funding for your business, but you’re unsure which option is best. You could apply for financing from your bank, bring on an investor, borrow from family, or even work with a factoring company. They’re all viable options. However, determining your choice depends largely on your unique situation.

Four Great Funding Alternatives For Businesses

Need a little guidance? Read about all four funding sources below. This guide will help determine whether each funding source suits your goals and needs.

Bank funding

The bank may be your first stop in your search for funding. Getting business funding from a bank can be a lengthy and complex process. Your bank will likely want several years of tax returns and financial statements, all of which should be prepared by a CPA.

Additionally, they may want to see your business plan and detailed budget. The business will need a strong credit story, and each owner will likely need a high credit score. Even after all that, the decision to approve may simply come down to the underwriter’s subjective feelings about your business. Bank funding may be appealing, but it’s not easy to obtain.


Another option may be to bring in an investor. A private investor can be a good source of quick cash. The investor also may be more flexible in terms of their requirements. They could be more accepting of storied credit or cash flow troubles.


However, an investor may have other requirements that you won’t find with traditional lenders. For example, the investor will likely have a stake in the business. Are you prepared to give up some of your business’s equity?


Also, the investor may want some say in essential business decisions. They may even want complete control of the business, depending on how much equity they have. Are you prepared to give up some control or to work for someone else in your business?


An investor could be a good solution, but there are possible drawbacks. Check the investor financing lesson and determine whether an investor is your best funding source.

Family and friends

For many business owners, family and friends are a common source of capital. That’s especially true for start-ups, who may not have many other options. Your family and friends may be willing to overlook issues that banks or investors would object to, such as credit issues, lack of business history, and even lack of a business plan.


However, taking loans from family and friends can often be more trouble than it’s worth. Your family and friends may not understand the distinction between a lender and an investor and may feel they should have input and control over your business. If you take loans from multiple family members, your family get-togethers could devolve into group discussions about your business leadership.


There’s also the issue of repayment. If you fail to repay the loan on time or fail to repay it completely, you could forever tarnish your relationships with your family and friends. The loss of family could be much more significant and painful than the loss of your business.


Your family and friends could very well be a good source of capital. However, do your research and due diligence before moving forward. If there’s any chance that the agreement could spoil your relationships, you may want to exhaust all other options before you take money from family members.


Still not sure whether to approach your family or friends? Check out this family financing article to determine whether it’s right for you.


If you don’t qualify for bank lending, don’t want an investor, and don’t want to borrow from family and friends, what funding options are you left with? There’s one other solution that could be right for you.


Invoice factoring is a unique funding solution in which you sell your outstanding invoices to a third-party company called a factor. The factor advances you a percentage of the invoice balance, usually 80 percent, but sometimes as high as 95 percent. The factor then collects on the invoice from your customer, deducts a small fee, and forwards you the balance.


Perhaps the best part is that the factor isn’t concerned with your credit history. Instead, they’re concerned with your customer’s ability to pay the invoice. If your customers have solid credit and you are issuing invoices with specific payment terms, then factoring could be a good solution for you.


In many cases, a factor can approve your application and get you funded quickly, often in days.

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