Small Business Finance Guide
Small Business Finance Basics and Questions
Real answers to real questions about small business finance and funding, from borrowing to cash flow and growth.
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Small Business Finance Basics
What kind of financial planning do small businesses need?
Ideally, your small business financial plan contains key statements and forecasts that help inform the actions of the business.
Personal financial statement
A snapshot of your personal assets, liabilities, and net worth, often required alongside a business loan application.
Balance sheet
Your business's current assets and current liabilities — the raw material for every working capital calculation.
Cash flow forecast & statement
Shows how much money is flowing into and out of your business, so you can foresee gaps before they happen.
Income statement
Summarizes revenue, costs, and expenses over a period of time to show whether the business is profitable.
Accounting ledger
The detailed record of every transaction that feeds your other financial statements.
Supporting documents
Documentation for taxation, insurance, real estate, and other obligations that lenders may request.
Using accounting software makes financial planning and record-keeping less time consuming. When you need to apply for funding, you can reduce the legwork of recreating these statements for your application — with FundThrough, you don't need to submit any of them, since our app integrates directly with your invoicing software.
Definition
What is cash flow?
Cash flow is the lifeblood of your business — the measure of how much money is flowing into your business versus the amount flowing out over any given period. Negative cash flow is the number one reason businesses fail.
What is a cash debt coverage ratio?
Your cash debt ratio measures net cash from operating activities versus your average current liabilities, telling you whether your operations can support payment of your current liabilities.
Current cash debt coverage ratio = Net cash from operating activities / Average current liabilities
How do you get approved for a business loan?
Traditional lenders want to see established credit and a lengthy positive business and personal credit history. Without those, many owners turn to private lenders, investors, or VC firms — often meaning high interest rates, unfavorable terms, or giving up equity. That's why more entrepreneurs are choosing to make better use of their accounts receivable through invoice factoring instead.
What's the difference between secured and unsecured financing?
Secured financing means the borrower has used an asset as collateral — a risky strategy if you lose a major contract and default. Banks sometimes ask owners to use personal property like a home or retirement savings as collateral. That's why more owners turn to alternatives like invoice factoring, which advances funds you've already earned rather than creating new debt.
Ready to put your invoices to work?
Get Started NowChapter 2
Working Capital
Definition
What is working capital?
Working capital refers to the resources available for you to use in your day-to-day business operations, including cash, accounts receivable, inventory, and securities.
How is working capital calculated?
Current assets – current liabilities = working capital
What is a working capital ratio?
Your working capital ratio, or current ratio, shows how your current assets stack up against your current liabilities. A ratio of 1.0 indicates you may be facing imminent financial difficulties, while a ratio of 2.0 demonstrates greater short-term liquidity and better financial health.
Current assets ÷ current liabilities = working capital ratio
Can positive working capital be too high?
Yes. If you're holding more than one year's worth of liabilities in working capital, investors and lenders might see this as a drawback — those funds could be better spent investing in growth or improvement.
How can working capital problems be solved?
Collect payments as quickly as possible to keep cash flow positive. Avoid using working capital to finance fixed assets like equipment — deploy short or long-term financing there instead. Make sure you're maximizing the value of your accounts receivable by using a tool like invoice factoring to convert working capital into free cash flow as needed.
Chapter 3
Debts, Assets, and Growing Your Business
Many small business owners ask how the assets, debts, and credit history their business already has shape the financing options available as they grow — questions like whether to use company assets as loan collateral, the risks of pledging personal property, and how debt financing compares to invoice factoring.
The theme running through all of these questions is the same: using your company's assets or personal property as loan collateral carries real risk, and businesses without a long credit history or large asset base often find it hard to qualify for traditional debt financing at all. That's one of the reasons alternative tools like invoice factoring — which advances cash you've already earned rather than creating new debt — have become a go-to option for growing businesses. See if you qualify.
Chapter 4
Capital and Commercial Loans
Are commercial loans a good funding option for small businesses?
They can be, but taking on new long-term debt shouldn't be an owner's first choice. Unfortunately, about 80% of small business loan applications to banks are rejected, since SMBs often lack the business history, credit record, and assets banks demand.
Invoice factoring vs. invoice discounting: what's the difference?
With invoice discounting, your invoices are used as collateral for a loan, typically advancing only 80% of the invoice value while you pay an interest rate above prime, plus a monthly fee to maintain the loan. With FundThrough's invoice factoring, you're not accumulating new debt — our fee structure is simple and transparent, you don't pay when you don't fund, and there's no obligation to fund invoices.
Will I qualify for invoice factoring with no business credit history?
You aren't required to undergo a credit check or pitch us your business idea. Instead, your FundThrough application is evaluated based on the volume and amount of your outstanding invoices and the strength of the businesses you're dealing with — even brand new businesses can qualify.
How long does it take to get cash from invoice factoring?
It takes about 3 minutes to complete your online FundThrough application and connect your invoicing and banking software. Upon approval, funds can be available as soon as the next business day.
See what your invoices are worth today
Get Started NowChapter 5
Alternative Finance
Definition
What is alternative business funding?
Alternative business funding includes non-traditional methods of generating working and investment capital for your business.
What are some alternatives to bank loans for small businesses?
If you've been rejected by the big banks, you're not alone — a U.S. Bank study found that 82% of business failures are due to issues with cash flow. Alternatives to bank loans include:
Private lenders
Higher-interest lenders willing to work outside traditional bank criteria.
Angel investors & VCs
Equity investors who fund promising businesses in exchange for an ownership stake.
SBA loans
Longer-term loans guaranteed by the U.S. government.
Grants
Non-repayable funding, often tied to specific industries, regions, or business types.
Lines of credit
Revolving credit you can draw on and repay as needed.
Merchant cash advances
An advance against future sales, repaid through a percentage of revenue.
Invoice funding
Advances on revenue you've already earned but haven't been paid yet.
What's the best way to get funding when banks and lenders don't believe in our idea?
When it comes to funding your small business, keep a few key considerations in mind:
- Ownership and control of your business.
- Interest rates and financing fees.
- How repayment is structured.
- Protecting your personal assets.
Consider the potential impact of creating new debt or giving up ownership or control. There's even greater risk in putting personal assets up as collateral. With FundThrough's invoice funding app, you can raise capital using revenue you've already earned instead.
What are my options for short term business funding?
Over 80% of small business loan requests are turned down by banks, and only half of applicants receive anything at all. For short term funding, invoice factoring puts cash you've already earned to work right away, without new debt, high interest, or giving up an ownership stake.
Simple. Transparent. Small Business Financing.
Turn your unpaid invoices into working capital in days, not months.
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