The 5 Best Types of Capital For Your Small Business

Yhordan Serpentini | July 27, 2022

In the last few posts we’ve been discussing the importance of capital for your small business, as well as how to access it; however, it is equally as important to know what kinds of capital are the best sources for your business growth. To put it simply, there are numerous sources of capital, and not every type will be suitable for your specific business, so you will have to decide which one best matches. To help you reach that decision, here are our recommendations for the 5 best types of capital for your small business

GettyImages 82960071 5665a84b5f9b583dc39362d4 1 — The 5 Best Types of Capital For Your Small Business

1. Small Business Grants

Starting with one of the best sources of capital, we have small business grants, which are federal grants provided by the government. The U.S. Small Business Administration (SBA) is the government agency that will provide entrepreneurs like yourself with these federal grants to help fund your small business(es). You can apply through the SBA website to see what available offers are in store for you. The best part about federal grants is that it is a loan-free form of funding—in other words, you won’t have to ever pay back for these grants. Likewise, the SBA also offers small business loans, but that is another source of capital we’ll touch on later.

2. Crowdfunding

Crowdfunding is another great source of capital for your small business, especially when starting from the ground up. Crowdfunding is exactly as it sounds; you bring your idea to the public, and the public will help fund your proposed required budget. There are a great number of resources for crowdfunding, such as physical or virtual fundraisers—some of the most popular crowdfunding organizations include Classy, SeedInvest, FundRazr, GoFundMe, and Kickstarter. Similar to federal grants, this capital isn’t loan-based, meaning you won’t have to pay back anyone for their investments and contributions.

3. Angel Investors

Angel investors are one of the best types of capital for business growth. If you aren’t familiar, angel investors are individuals who provide capital for one or more business start-ups. This type of capital is usually exchanged for convertible debt or a percentage of ownership equity; in other words, the investors will provide capital in exchange for some type of ownership equity in your company.

Angel investors will typically evaluate new ventures, estimate the value of these said ventures, and commit their own capital to some or all of these ventures that they view are worth value, as well as will benefit them. Although selling a percentage of your company for growth may not sound too fondly, the funding provided can be the difference between your business growing or failing.

4. Venture Capitalists

Similar to angel investors, Venture Capitalists (VC) are private equity investors that provide capital to companies that they believe have high growth potential in exchange for a percentage of ownership equity. The main difference between venture capitalists and angel investors is that venture capitalists typically invest their capital in businesses that have already started, as well as they only invest in the business that they believe have the highest potential for growth, while angel investors will commonly provide capital to fund the start-up of companies. If you are familiar with the TV series “Shark Tank” the ‘sharks’ of the show are all venture capitalists.

5. Small Business Loans

The last source of capital on the list is small business loans. As mentioned earlier, the SBA offers loans with their partnering lenders to assist small business owners with their companies. The main difference between SBA loans and traditional loans is that you are guaranteed capital with significantly lower rates, which means you’ll have to pay back with less interest and less APR than your average loan.

Do note that these five capitals are not the only available options; there are dozens of sources of capital for you to access. If you don’t think our recommended sources are suitable for your small business, there are plenty of other options, just make sure to research thoroughly before deciding which source to use.