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How to determine your business financing needs and pick the best option

Not sure if your business needs a loan? Use this guide to find out.

Most businesses could do better with extra money. But figuring how and when it’s a good idea to seek financing is another matter.

Understanding your financial needs is the first step toward narrowing down your financing options — or whether you need financing at all. We guide you through the preliminary steps to steer your business to the right path.

Five questions to determine your business’s financial needs

To decide whether your business needs outside financing, ask:

  1. Is my business doing well? Although it sounds counter-intuitive, It’s generally a bad idea to look into financing — especially loans — if your business is struggling. Not only will you not qualify for many financing options, but you also risk getting caught up in a cycle of debt if you can’t repay the loan.
  2. Are some seasons more profitable than others? Among the few times financing could be a good option for a struggling business is when it suffers seasonal losses. Access to extra funds can keep you afloat in the off-season until sales pick up and you’re able repay it more easily.
  3. Do I need to build my credit? Consider taking out a small loan you’re certain you can repay. By building up your business’s credit score, you’ll get better rates on future loans.
  4. Am I ready to expand? Business financing can be that extra push to making your business more profitable in the long run. But make sure you’re ready for that kind of growth.
  5. Can I afford to buy all the equipment I need to run my business? If a lack of equipment is holding you back, it might be worth it to look into business equipment financing.

How to choose your best financing option

The financial state of your business will largely determine your financing options. To avoid losing yet more money, struggling businesses should generally avoid financing options until they’re back on their feet. If your business is growing and you want to put more fuel in the fire to grow even faster, a business loan is a good option.

In addition, how seasonal your business is and the industry it’s in will impact which financing option you choose. For example, seasonal professions might want to look into opening a business line of credit for access to cash that covers day-to-day expenses when profits aren’t enough. And businesses in agriculture and manufacturing sectors could benefit from equipment loans to directly affect their profits.

Compare top business loan options

Name Product Filter Values Loan amount APR Requirements
Biz2Credit business loans
Finder Rating: 4.7 / 5: ★★★★★
Biz2Credit business loans
$25,000 – $6,000,000
Starting at 5.99%
6+ months in business; $100,000+ monthly revenue; 500+ credit score
Get only the capital you need through secure, prescreened lenders with this highly rated company offering SBA, expansion, working capital and other loans.
Lendio business loans
Finder Rating: 4.75 / 5: ★★★★★
Lendio business loans
$500 – $5,000,000
Starting at 6%
Operate business in US or Canada, have a business bank account, 560+ personal credit score
Submit one simple application to potentially get offers from a network of over 300 legit business lenders.
ROK Financial business loans
Finder Rating: 4.7 / 5: ★★★★★
ROK Financial business loans
$10,000 – $5,000,000
Starting at 6%
Eligibility criteria 3+ months in business, $15,000+ in monthly gross sales or $180,000+ in annual sales
A connection service for all types of businesses — even startups.
OnDeck short-term loans
Finder Rating: 4.6 / 5: ★★★★★
OnDeck short-term loans
$5,000 – $250,000
As low as 35%
600+ personal credit score, 1 year in business, $100,000+ annual revenue, active business checking account
A leading online business lender offering flexible financing at competitive fixed rates.
Fundbox lines of credit
Finder Rating: 4.2 / 5: ★★★★★
Fundbox lines of credit
$1,000 – $150,000
Not stated
6 + months in business, $100,000+ in annual revenue, 600+ credit score
Get flat rate, short-term financing based on the financial health of your business, not your credit score.

Compare up to 4 providers

Case study: Michael gets a line of credit for his pizza shop

Imagine this scenario: Michael opened a pizzeria next to a high school. He made more money than he could’ve ever imagined — that is, until summer arrived.

All set to go to the bank for a loan to cover overhead costs for the summer, Michael wanted to make sure it was the right choice for his business. After researching small business financing, he learned that a line of credit could be better for his pizzeria. With a business line of credit, he’d only take out what he needs, when he needs it — allowing him to better manage his debt.

Only needing $5,000 at the time, he took out a $10,000 LendingClub line of credit to be safe. The line of credit came with an 8% interest rate, and Michael paid what he borrowed within the first few months of the school year as business picked up again.

Bottom line: Understanding your business’s needs is the first step to making a smart financing decision. You won’t be ready to compare your options if you aren’t able to narrow down the type of financing you’re looking for and why you need it.

Read more about specific business financing options

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