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5 Ways to Finance Your Small Business During Tough Times

5 min read • Jan 12, 2021 • Derek Miller

The COVID-19 pandemic created a significant amount of stress for small business owners who were forced to shut down or operate in a limited capacity because of the risk of viral spread. According to a report by McKinsey and Co., some sectors could take more than 5 years to recover to 2019 levels, with industries like food service, recreation, and entertainment taking some of the biggest hits.  

If you need additional funding during this trying time, you are not alone. Other small businesses are looking for help, and many financial providers are doing what they can to accommodate their needs. Get to know your options so you can secure the working capital needed to weather this storm.

1. Short Term Loans

One of the most common ways to secure funding as a small business owner is with a short term loan. These loan terms can be set for 1 to 3 years and start as low as $2,500 (going as high as $500,000). Short term loans are ideal if you need to cover basic costs immediately but anticipate growth and profitability in the long-run.

The pandemic serves as a strong example of how short term loans help small businesses. A company could have taken out a loan to cover expenses like rent, utilities, and marketing during the lockdown period when they still had costs but no profits. Once the pandemic subsides, the business owner can pay back the loan with the profits they earn. 

Interest rates for short term business loans start at 8%. Depending on your terms and business credit, you may have flexibility with your monthly payment and loan length, allowing you to pay it off sooner with the right financial planning. 

2. Business Credit Cards

Another option to increase your financing options right now is with a business credit card. This works much in the same way as your personal cards. You can get approved for a credit limit and need to pay off the balance (or at least make the minimum payment) monthly. 

Taking on a credit card is considered a flexible way to fund your business, but it does have its limits. You might not be approved for a large amount, limiting your opportunity to make bigger investments. Some of your vendors might not accept credit card payments, which means you will need to rely on additional streams of income.

Additionally, if you can’t pay off your business credit card each month, you’ll accumulate potentially high-interest debt over time, which could become hard to pay off as it compounds. You will need to pay the interest on this debt, driving up your operating costs and potentially limiting your credit options until you reduce your liabilities.

3. Additional Investments

You don’t always have to work through a bank or credit provider to find additional funding options for your business. Instead, you can raise capital with the help of private investors who will write you a check after you agree on payment terms. 

There are many places to find investors in your community. You can look close to home by asking family and friends to support your business plan, or you can set up an appointment with a professional investor who supports your town or city. 

When you meet with a potential investor, come with a plan. Tell them what you need the money for, how you will pay them back, and how you can be held accountable through your business operations. You want to put together a compelling argument for why they should trust you with their money.

Note that some investors will want to be more hands-on than others. They may want to sit on your board of directors or offer input into operational decisions as a partner. Make sure you set terms for your relationship before they fund your business. 

4. Crowdfunding

The internet has created less traditional ways to fund a business beyond meeting with a financial institution. Crowdfunding is the process of raising capital for a business or idea through several micro-investments—typically using an online community such as GoFundMe, Kickstarter, or Indiegogo. 

The idea is that several people will give a little bit instead of a few investors giving a lot. 

For example, a restaurant owner might ask for $10,000 on a crowdfunding platform. If the campaign has 500 donors, then each donor only needs to give $20 to reach that goal. The restaurant owner will typically offer incentives to donate, like a free cocktail or dessert when the new business opens. 

This is a great option because many crowdfunding sites don’t require you to pay donors back, eliminating any fees or payment plans. However, there is a risk that you don’t hit your fundraising goal and only end up with $200 instead of the $10,000 or more that you need. 

5. COVID-19 Relief: PPP Funding

Even before the pandemic, the Small Business Administration provided grants and loans for businesses that needed to get off the ground. Then, in April 2020, Congress approved the first round of funding for the CARES Act, which offered Paycheck Protection Program (PPP) loans for businesses to keep their team members on staff. 

PPP loans are meant to help you cover payroll costs in order to keep your team employed. These loans can be forgiven if you prove that you kept everyone on staff without cutting their hours or pay rates. 

While the first round of PPP funding went fast, Congress continues to add additional support to the program and the CARES Act. If your business hasn’t looked into the PPP loan or other government COVID-19 funding options, then now is the perfect time.

Review Your Financial Options

Before you start to apply for a loan or look into crowdfunding, identify which course of action would be best for your funding needs. For example, crowdfunding doesn’t come with interest payments and won’t hurt your credit score—but it’s not guaranteed like a loan. And a loan might seem like a good short term solution, but you need a healthy debt-to-income ratio to pay it off promptly. 

Evaluate your finances and create a plan for success moving forward. Once you have everything mapped out, use a lending marketplace like Lendio to find competitive lenders who are eager to approve and fund your loan.


Derek Miller

Derek Miller is the CMO of Smack Apparel, the content guru at, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy,, and StartupCamp.