Type of financing

Best for

Pros

Cons

Credit and charge cards

Startups looking for a quick and easy way to cover initial operating expenses, and pay for inventory or rent

Easy to obtain; some have no pre-set spending limit; using several cards at one time can increase the credit limit and cash available; a low monthly payment can cover a high debt

Because there is no repayment deadline, you could carry a balance and pay interest forever; if the prime interest rate jumps, you could face significant monthly finance charges

Conventional bank loan

Companies with a proven track record; loans of more than $25,000; working capital, large purchases or capital investments

Most have low-, fixed-interest rates

Application process can be cumbersome; many startups don't qualify

SBA-guaranteed loan

Companies that do not qualify for traditional loan; working capital, large purchases or capital investments; loans up to $1 million (but average loan is about $35,000)

Another option for companies rejected for conventional bank loans; low interest rates

Application process can be cumbersome

Microloans

Small companies that don't qualify for traditional loans; working capital, inventory, supplies, furniture; very small loans of $100 to $35,000

Most banks aren't interested in very small loans; startups with limited collateral or financial history often qualify

Higher interest rates; often requires a personal guaranty

CDFI

Companies in areas that need economic development; companies with credit problems or limited collateral; loans of $25,000-$500,000

Easier to obtain than a traditional bank loan (if company meets CDFI requirements)

Higher interest rates

Venture capital

High-growth companies; product design and development, company expansion or acquisition; loans of $500,000 to $10 million

Allows rapid expansion and development; investors can serve as mentors and business advisers

Company must give up equity in exchange for financing; difficult to find and obtain

SBIC

High-growth, early-stage companies; product design and development, company expansion or acquisition; loans of $150,000 to $5 million

Allows rapid expansion and development; investors can serve as mentors and business advisors

Company often must give up equity in exchange for financing