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Do businesses get tax refunds? Sometimes, yes.

Generally, taxpayers, whether individuals or businesses, will only get a refund if they pay more in taxes during the year than they end up owing. Tax refunds for small businesses tend to be less common than refunds for individuals simply because they often do not pay taxes directly.

Whether or not your business can get a tax refund will depend on how it is structured and how much you paid in estimated taxes during the course of the year. Here’s a closer look at how a business can get a tax refund.

How Do Tax Refunds Work?

Taxpayers can generally receive a tax refund if too much money was withheld from their paychecks throughout the year. Because business owners typically don’t have any taxes withheld on their business income, they will often pay their federal and state taxes on a quarterly basis. These payments, called estimated taxes, are based on how much the owner thinks the business will owe in taxes. If the estimate is too high, they will get a refund.

However, whether that refund goes to the business owner or to the business itself will depend on the way the business is structured. Generally, C-corporations are the only type of business entity eligible for a direct tax refund.

Recommended: What Is a Small Business Audit?

Are Businesses Eligible for Tax Refunds?

In some cases, yes. A small business that is registered as a corporation may be eligible for a tax refund if it overpaid on its quarterly estimated taxes. Any amount of overpayment would be refunded to the business after its tax filing.

Most small businesses, including sole proprietors, LLCs, partnerships, and S-corporations, however, pay their business income tax through the owners’ personal tax return. These are called pass-through businesses because their profits “pass-through” to the owners’ personal tax return, and the business owner or owners pay taxes rather than the business.

Business owners who report income from pass-through companies include the income (along with income from other sources, like wages, interest and dividends, gains on the sale of property or rental income) on their individual 1040s. These individual owners would receive a refund only if their total payments and withholding exceed their total tax liability on the return.

Recommended: Startup Business Loans

Pros and Cons of Overpaying Taxes to Get a Refund

The key to getting a tax refund on your business’s income is to pay more in taxes throughout the year than you end up owing at the end of the year. This is the case whether you own a pass-through business (and report your business’s earnings on your personal tax return) or a corporation. Here’s a look at the advantages and disadvantages of overpaying taxes to get a refund.

Pros

•   Avoid fines from the Internal Revenue Service (IRS) from paying too little

•   Reduced cash flow prevents the business from overspending

•   Refund can be put into a savings account for next year’s quarterly taxes or used to pay off debt

Cons

•   Can take time to receive a refund

•   Reduces your business’s cash flow and spending potential

•   Can make a company’s financials seem worse than they are, which might make receiving a business loan more difficult.

How Different Types of Businesses Pay Taxes

When figuring out “Can a business get a tax refund?” it depends in part on your type of business. Whether your business can get a tax refund or not will depend on how it is structured. There are five types of business structures, each with its own tax requirements.

Sole Proprietorship

A sole proprietor is a person who runs an unincorporated business by themselves.

Because a sole proprietorship is not a distinct legal entity from the sole proprietor, the business does not file a business tax return. Any money earned or lost is reported on the business owner’s personal tax return using Form Schedule C.

Limited Liability Company (LLC)

A limited liability company (or LLC), is essentially a legal hybrid between a sole proprietorship and a corporation. The benefit of an LLC is that the business owner is protected from any personal responsibility associated with the business’s debts (such as different types of small business loans).

LLC owners typically report income from their business (along with income from other sources) on their individual 1040s. These individual owners would receive a refund only if their total payments and withholding exceed their total tax liability on the return.

Recommended: Sole Proprietorship vs. LLC: How to Choose

S-corporation

S-corporations pass their income through to their owners (called shareholders), so the business itself doesn’t pay any corporate tax. Each owner reports this income on a Schedule K-1 when they file their personal tax returns and pays taxes on their share of the business’s profits.

Partnership

Partnerships file Form 1065 to report the company’s revenues and expenses. However, the partnership doesn’t pay taxes to the government directly. Each partner receives a Schedule K-1 that reports their share of the business’s profits. They then use this K-1 to fill out their personal tax returns and pay any tax due on that income.

C-corporation

A business structured as a C-corporation is taxed separately from the business owners. C-corporations use Form 1120 when filing their taxes. A C-corporation is a type of business that could get a tax refund in the event that it pays more estimated tax during the year that is due on the final tax return.

Types of Business Taxes

Whether your business or you as the owner can get a tax refund also depends on the type of taxes you pay. Here’s a closer look at how and when you might get a refund.

Income Tax

Businesses or business owners typically have to pay federal, and often state, income tax on any profits earned in a given year. They typically do so by paying quarterly estimated tax payments. If the owner or business overestimated and overpaid, it may receive a refund.

Payroll Tax

If your business has employees, you must report and deposit both federal and state payroll taxes, which include unemployment taxes, FICA taxes, and income tax withholding. Regardless of your business structure, it might be possible to receive a refund on payroll taxes if you overpay your account.

Self-Employment Taxes

Self-employment taxes go towards both Medicare and Social Security. All LLC members, sole proprietors, and partners in a partnership must pay self-employment taxes. An overpayment of these taxes could result in a refund to the business owner.

Sales Tax

Many states and cities levy a sales tax on transactions of goods and services. The federal government also taxes certain goods and services, such as tobacco or fuel. An overpayment of sales or excise taxes could result in a refund to the business or owner.

Recommended: Equipment Financing Loans

5 Tips to Maximize Business Tax Refunds

Do business owners get tax refunds? It depends on several factors.

One way to maximize business tax refunds is to deliberately overpay estimated taxes, which, as mentioned above, has both pros and cons. Here are some other ideas to keep in mind when planning your business’s finances.

1. 401(k) Matching

If you offer your employees a 401(k), you may want to consider also offering matching funds. The amount your company offers in a 401(k) match is typically considered a qualified business expense up to certain limits.

2. Tax Credits

As a business owner, there are a number of tax credits you may be able to take advantage of at both the federal and state level. Speak with your account or take a look at the IRS’s business tax credits to see what credits you may be eligible for.

3. Tracking Mileage

If you drive for business, it can be a good idea to track the amount of business miles you’re logging throughout the year. The IRS allows you to deduct a certain amount for every mile driven for business purposes (for the 2023 tax year, it will be 65.5 cents per mile).

4. Home Office Deductions

If you have an office in your home dedicated solely to your business, you may be eligible for a home office deduction. Generally, your home office must be either the principal location of your business or a place where you regularly meet with customers or clients.

Home office business deductions are based on either the percentage of your home used for the business or a simplified square footage calculation.

5. Employee Bonuses

Bonuses can be a win-win. They not only help incentive and reward employees, they may also qualify as a small business tax deduction. There are rules and regulations around how much of a tax deduction you can take from employee bonuses. To learn more, refer to the IRS’s Guide to Fringe Benefits.

The Takeaway

Do businesses get tax refunds? A business can get a tax refund if it overpays its estimated taxes. However, whether that refund goes to the business itself or to you, as the business owner. will depend on how your business is structured. Generally, the only way the business itself will get a tax refund is if it’s structured as a C-corporation.

Whatever your business structure, however, there are actions you can take throughout the year that could potentially reduce your tax burden and, subsequently, increase your tax refund. A tax professional can offer guidance.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Can small businesses get money back on their taxes?

It’s possible. However, in order for a small business to get a tax refund, it would need to pay more than is actually owed to the Internal revenue service (IRS) in estimated taxes. And, unless the business is structured as a C-corporation, any refund would go to the business owners, not to the business itself.

Do business owners get tax breaks?

Many businesses qualify for tax breaks, described as tax deductions. It is “any ordinary and necessary expense” incurred to carry on any trade or business. It’s up to the business owner to pursue tax deductions. The pass-through deduction allows eligible small business owners to deduct up to 20% of their net business income.

How much can small businesses get back in taxes?

It all depends on how much the business paid in estimated taxes. If the business (in the case of a C-corporation) or the business owners (in the case of a pass-through business) overpaid estimated taxes during the year, that business or owner would get a refund.

Are LLCs able to get tax refunds?

Not typically. LLCs are generally treated as pass-through entities for federal income tax purposes. This means the LLC doesn’t pay taxes or get refunds of its own. Instead, each member pays taxes on the business’s income in proportion to their ownership stake in the LLC. If the LLC members overpay their estimated taxes, they would receive a tax refund.

Will I get a tax refund if my LLC loses money?

It may happen in certain circumstances. Most likely, if your LLC takes a loss, you can likely include the business loss in your tax return to lower your taxable income.

Photo credit: iStock/Jirapong Manustrong

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Small Business Loans
*Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. Funding or funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank's ability to clear a transfer and make funds available.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOSMB-Q125-015

A budgeted income statement is a tool that allows businesses to estimate how well they will perform financially in the coming months and year. It looks like a regular income statement except that it estimates the expected revenue, net income, and expenses for an upcoming period instead of analyzing past performance.

A budgeted income statement can help you assess whether your future financial plans are realistic or you need to make some budget adjustments. It also allows you to anticipate (and plan for) any expected adverse changes in the market and determine whether or not you need financing.

Read on to learn more about budgeted income statements, including how to prepare one and how they can help you grow your small business.

What Are Budgeted Income Statements?

By definition, a budgeted income statement (or simply a budget income statement) is a tool to help businesses estimate future expenses, revenues, and profit for a given period. Companies that make use of these income statements for budgeting usually create them at the beginning of the fiscal year to help create a realistic forecast for all four quarters. Some companies may separate this financial report into smaller monthly sections for a more detailed assessment of what the coming year may look like.

If you have plans to grow your business — say, by investing in new equipment, hiring more employees, or expanding your products or services — a budgeted income statement can help you determine if your plan is feasible. By budgeting via income statement, you’ll be able to estimate your revenue and expenses, anticipate problems, and make decisions accordingly. Such estimates can also be useful when you’re applying for a startup business loan or other credit.

Before you can create a budgeted income statement, you’ll need to have created all the other operating budgets, such as the direct materials, direct labor, manufacturing overhead, and administrative expense budgets.

💡 Recommended: What Is Vendor Financing?

What Is Included in a Budgeted Income Statement?

A budgeted income statement is essentially created by subtracting the projected cost of goods sold (COGS) and other expenses from the projected net sales. It generally includes every section included in a normal income statement:

•   Sales

•   COGS

•   Gross profit (sales – COGS)

•   Operating expenses

•   Operating income (gross profit – operating expenses)

•   Interest expenses

•   Estimated income taxes

•   Net income

Example of a Budgeted Income Statement

Below is a budgeted income statement example for fictional company ABC. All numbers are based on forecasts (as well as data from previous years) and the statement represents the estimated profits and losses for the first month in the upcoming fiscal year.

In this budgeted income statement example, Company ABC estimates they will earn a net income of $9,480. This helps justify their spending and expenses because of the positive net income generated for the company.

Why Are Budgeted Income Statements Important?

Budget income statements are important because they assess if a company’s financial plans look to be feasible. This can lead to a variety of benefits, including:

Risk Management

All growth involves an element of risk. Using an income statement to budget helps you limit that risk by determining whether your company has the financial resources it needs to accomplish upcoming projects and plans for growth. It can help you avoid making bad business decisions and/or spending more than you can afford.

This type of statement also forces you to consider any potential pitfalls or added expenses that may come your way and plan for them so they don’t put your company at risk.

Justifying Purchases

“You have to spend money to make money” is the old adage that the budget income statement often verifies. Business owners can use a budgeted income statement to show that if the company is willing to spend X, it could potentially earn Y. This can be useful if you are looking for an outside investment or business equipment financing to fund a project that might be viewed as risky.

Inform and Attract New Investors

A well-thought-out budgeted income statement can show any potential investors what your company’s expenses and profits will likely be in the coming months and year. Such a statement can make it clear that a business owner not only has a vision for their company’s future, but also a detailed action plan that outlines every expense and projected revenue. This is likely to give would-be investors more confidence in the company and its mission. Similarly, showing a carefully compiled budgeted income statement to lenders may help you negotiate better terms on a small business loan.

Setting Targets

The projections from a budgeted income statement provides spending and earning targets that people in the company can work together to achieve. If the budgeted income statement sets a lower-than-usual budget for administrative expenses, for example, employees can then look for ways to reduce spending in order to meet the target and, in turn, increase revenue.

Tracking Performance

A budgeted income statement is also valuable to have at the end of the year because it allows you to compare profit and loss projections with actual numbers. Whether the company exceeds expectations or falls short, it provides an opportunity to ask why. For either scenario, the answers can be illuminating and affect the company’s next steps.

Recommended: Business line of credit

Preparing a Budgeted Income Statement

Preparing a budgeted income statement is similar to a regular income statement. The only difference is that the amounts are based on projections rather than past performance.

The steps to prepare a budget income statement are:

1.    Determine projected net sales. This is the total amount of revenue you expect to bring in from sales (minus any expected returns, discounts, or allowances). You estimate net sales by multiplying the expected number of units sold by price per unit.

2.    Estimate the COGS and subtract it from the projected net sales. The COGS includes the direct costs of producing the goods or services that your company sells, such as materials, labor, and overhead costs. You then multiply the expected number of units sold by the cost of production. When you subtract COGS from projected net sales, you get estimated gross margin.

3.    Estimate selling and administrative expenses and subtract them from the gross margin. Selling and administrative expenses can include advertising, rent, salaries, and other general and administrative expenses.

4.    Estimate interest payments and taxes and subtract them from the remaining number. By calculating interest payments and other itemized deductions, you can get an estimated net income for the projected period.

Recommended: Guide to Business Tax Refunds

Limitations of Budgeted Income Statements

While there are numerous benefits to preparing a budgeted income statement, this type of financial statement also has some limitations.

For one, a budgeted income statement is based on estimates and assumptions. While these assumptions are based on historical sales data and expected market conditions, actual sales and market conditions could turn out to be different than anticipated. In other words, these numbers are not set in stone.

Another downside to budgeted income statements is that they take a fair amount of time and effort, as well as business expertise, to prepare.

These statements are also somewhat inflexible. Because they are based on information from several other budgets, making any change to a budgeted income statement requires making a corresponding change in the supporting budgets.

The Takeaway

A budgeted income statement can help businesses maximize profits and decrease expenses by forecasting how much they are likely to make and spend. It can be used as a tool for growth and strategic planning to ensure your company has the financial resources needed to have a successful year.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What is included in a budgeted income statement?

A budget income statement often includes estimates for sales, cost of goods sold (COGS), gross profit, operating income and expenses, interest expenses, income taxes, and net income.

What is not included in a budgeted income statement?

A budgeted income statement does not report information about cash reserves, cash flow, or non-cash sales. It also does not include dividends, unrealized gains or losses on investments available for sale, or changes in the value of long-term liabilities.

Should all businesses use budgeted income statements?

Preparing a budgeted income statement can be a smart move for any business because it helps to justify expenses and verify that plans for future growth are financially feasible.

How is a budgeted income statement prepared?

To prepare a budgeted income statement, start by estimating the net sales revenue you expect and the COGS (including all direct costs of producing your goods or services). Subtract the COGS from net sales to get the estimated gross profit. Calculate the operating income by subtracting your projected selling and administrative expenses; for the net income, you’ll also subtract estimated interest payments and taxes.

How do budgeted income statements help investors?

Budgeted income statements help investors by providing a company’s projected revenues and expenses for the coming months or year. It also allows investors to see how the company’s expected performance compares to previous years.

Photo credit: iStock/fizkes

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q125-013

For many small business owners, the process of accessing capital for starting or supporting a newer business can be daunting. Many banks don’t lend to newer businesses because they see it as risky or perhaps there’s limited profit to be gained. This can leave potential borrowers with limited options for funding, which might be required for working capital and other startup costs.

Thankfully, with the growing trend toward microlending, small business owners can obtain loans, typically up to $50,000, to help them with small business financing. While microloans are small, they are often exactly what small business owners need to cover essential costs associated with launching their business.

There are a number of ways for business owners to apply for microloans, including through Small Business Association (SBA) loans, nonprofits, and alternative lenders. It’s important to understand the different types and how they work to help ensure that you choose the one that best aligns with your business needs.

What Is a Microloan?

There’s no precise microloan definition, but a microloan is typically financing of up to $50,000 that is targeted to small businesses with fewer than five employees.

Community-based microlenders may offer SBA loans or non-SBA loans to small business owners, entrepreneurs, and nonprofit child care centers. Such microlending may provide financing to the smallest companies, including new firms that may not qualify for startup business loans from banks.

The average SBA microloan is about $13,000, according to the SBA. Microloans for small businesses are typically offered by nonprofits, government agencies, or individual lenders to be used for a variety of business expenses. Microloan programs can differ with focus on specific types of businesses, such as female entrepreneurs, underserved communities, or veterans. Some microloans specify that funds be used for specific purposes.

Microloan uses may include:

•  Working capital

•  Inventory or supplies

•  Furniture or fixtures

•  Machinery or equipment

•  Initial startup expenses

In addition to lending money, some microloan programs offer assistance with things like marketing, financial counseling, training, and technical assistance to support budding entrepreneurs. For new business owners, this support can be valuable to help them responsibly use capital and plan for the future of their business.

Common Microloan Rates and Terms

Microloan interest rates and terms vary from lender to lender and depend on the type of loan program and the individual borrower’s qualifications. However, they are generally offered as monthly installment loans with fixed interest rates. Terms can vary from a few months to six or seven years. Some lenders may offer longer terms.

Factors that may contribute to loan repayment terms include:

•  Loan amount

•  How funds will be used

•  Specific lender requirements

•  Needs of the borrower

While there are other loan products that small business owners may be able to access, microloans may be a more predictable and sustainable lending option compared to merchant cash advances, which typically have high borrowing costs and less regulatory oversight.

Recommended: Guide to Vendor Financing

4 Types of Microloans

To find the right microloan for your business, it helps to understand the different types of microlenders. What is microlending? It’s when community-based organizations offer financing to small businesses and startups with fewer than five employees. Many lenders offer microloans of up to $50K in addition to other loan programs, while some lenders specialize in microlending to specific communities.

Below, you’ll find information on different kinds of microlenders and generally how a microloan works for each type.

1. SBA Microloans

The SBA’s microloan program provides direct, government-backed loans to intermediary microlenders who can then offer borrowers necessary funding and training to start and run a small business. Loans can be up to $50K with some programs specific to women, veterans, and other underserved communities.

Terms and conditions are negotiated directly with the intermediary lender, not the SBA, but in general, SBA microloan interest rates and terms are:

For more information on where to find a local SBA intermediary lender or get more information about microloans, contact your local SBA district office.

2. Peer-to-Peer (P2P) Microlenders

Peer-to-peer (P2P) business lending allows borrowers to access capital directly from other individuals (investors), without a financial institution acting as a middleman. Using online platforms to connect, borrowers can often find funding quickly from lenders who want to invest.

For small business owners with little or bad credit, P2P lending may be a useful resource for accessing microloans. Many investors don’t require the same level of qualifications that a bank or credit union does (like collateral or good credit), but it’s still important to research P2P lenders and their terms and conditions to ensure they meet your business needs and financial outlook.

Recommended: Guide to Peer-to-Peer Lending for Business

3. Mission-Driven Microlenders

Many microloans are offered by mission-driven lenders who desire to support specific communities and people groups with economic and entrepreneurial opportunities. These microlenders can be nonprofits or community development financial institutions, also known as CDFIs. Examples of CDFIs include:

•  Community development banks

•  Community development credit unions

•  Community development loan funds

•  Community development venture capital funds

Some microlenders actually maintain CDFI certification, which tells borrowers that an institution is committed to the principles of CDFI. The U.S. Department of the Treasury offers a complete list of CDFIs for borrowers who prefer to apply to microlenders who have CDFI certification.

Recommended: Online Business Loans: Compare and Apply

4. Online and Alternative Lenders

Alternative small business loans are those offered by individuals or lenders that aren’t a traditional bank. Alternative microlenders may include:

•  Crowdfunding sites

•  Online small business lenders

•  Angel investors

•  Venture capitalists

•  Friends and family

If you’ve been in business for several years and need working capital, small business loans may be right for you. Such financing can come from online lenders and major banks.

Pros and Cons of Microlending

For small business owners, microloans may be a vital part of their business success. Yet, even with the advantages, there are some potential risks to be aware of before applying for microloans.

Pros of Microloans

Here are some of the pros of microlending:

•  More flexible borrower qualifications

•  Additional services (training, marketing, counseling)

•  Fast turnaround time on application and access to funding

Cons of Microloans

Here are some of the cons of microlending:

•  Smaller loan amounts

•  Some microloans have limits on how funds can be spent

•  Potentially higher interest rates than a traditional bank

How to Get a Microloan in 4 Steps

Before you apply for a microloan, it’s important to research microlenders and have a thorough understanding of your business financials and goals. The following basic steps may help you prepare to apply for a microloan:

1. Creating a Business Plan

A business plan is helpful when planning for your future and may even be required by some microlenders. Taking time to write a formal business plan may help you assess your needs as you seek out funding. A traditional business plan can include an executive summary of your business goals and mission statement as a small business owner.

2. Determining Eligibility

Microlenders may have their own eligibility requirements depending on the loan program and lender, but in general, small businesses should meet the following criteria:

•  Be the sole business owner or co-owner of a for-profit small business

•  Have no recent bankruptcies, late payments, outstanding tax liens, or foreclosures

•  Have the ability to repay the loan with current income/revenue

•  Proof of good payment history with creditors

•  Have a clear, strong business plan for the future

•  Meet any special demographic requirements (e.g. veteran, minority, low-income), when applicable

There may be startup business loans for business owners with bad credit, but lenders may charge higher rates to compensate for the higher credit risk.

3. Choosing a Microlender

After conducting research based on your business plan and needs, it’s time to choose a microlender. Narrow your search to find a microlender that’s right for you. This may be a nonprofit, community-based organization that offers SBA microloans or a private lender that offers non-SBA microloans.

4. Gathering Documents and Information

Lenders may have different document requirements, so have the following ready to provide with your application or upon request:

•  Government-issued ID

•  Proof of income

•  Business and personal financial statements

•  How you’ll use the microloan

•  A detailed business plan

•  Proof of collateral, if applicable

•  A list of references who can vouch for you personally and professionally

Gathering the above documents and information can streamline the application process when applying for small business loans. You may not qualify for a microloan if you lack proof of identity or proof you’re a small business owner.

Lenders Who Offer Microloans

As mentioned earlier, nonprofits, government agencies, and individual lenders may offer microloans to small business owners.

The SBA provides funding to community-based nonprofits that offer microloans to eligible businesses. States may offer microloans under the State Small Business Credit Initiative (SSBCI), and the U.S. Department of Agriculture has a microloan program for small or nontraditional farm operations.

Private lenders may offer top small business loans for startups, including microloans to entrepreneurs.

Alternatives to Microloans

Here are other financing options you may want to consider:

Working Capital Loan

A working capital loan is any loan product that covers everyday expenses like payroll, monthly bills, and repairs. Many small businesses rely on working capital loans to manage cash flow fluctuations.

Business Line of Credit

A business line of credit is a short-term loan option that gives borrowers access to cash up to a set credit limit determined by the lender. Interest is paid on the money withdrawn from the credit line. Some lines of credit are revolving, while others end once you use and pay off the full loan amount.

Equipment Financing

An equipment loan is used to purchase business equipment. The length of the loan is typically equal to the expected life span of the equipment. The equipment acts as collateral for the loan. Rates may vary depending on the type of equipment, industry, and qualifications.

Top Small Business Loans

Entrepreneurs may be eligible for microloan funding. In some cases, a microloan may not be sufficient. For instance, a microloan may not be right for you if you need more than $50K.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How does a microloan work?

A microloan typically works like any other small business loan that has to be repaid over a set term. A microloan can provide small business owners with up to $50,000 in funding.

Who is eligible for a microloan?

Small business owners with fewer than five employees may be eligible for a microloan. Entrepreneurs may also be eligible for a microloan.

What is the benefit of a microloan?

The benefit of a microloan is it may provide small business owners with up to $50,000 to meet critical business needs. Community-based nonprofits may offer microloans to entrepreneurs and new small business owners who may be ineligible for traditional financing.

How hard is it to get a microloan?

There are many sources of microloans, including banks and nonprofits, which should improve your chances of finding a lender that’s right for you. Each lender will have its own eligibility requirements; these may include your business plan, current cash flow, credit history, and demographic details, among other specifics.

How much is a typical microloan?

A microloan typically involves financing of up to $50,000. The SBA reports that the average microloan amount is about $13,000.

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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To stay relevant and competitive, your business has to grow. But planning for the future and putting business growth strategies into action can be challenging.

Following the uncertainty of the past couple of years (thanks to inflation and interest rate adjustments aimed at controlling it), many business owners are looking for ways to stay flexible while also seizing new opportunities for expansion. To stay ahead of the pack, consider these strategies to set yourself up for business growth in 2025.

Develop a Clear Business Strategy

Developing a clear business strategy helps you grow a small business because it provides a roadmap for achieving your goals. A well-defined strategy helps you identify your target market, understand customer needs, and allocate resources effectively.

With a solid strategy, you can set measurable milestones, track progress, and adjust as necessary to stay competitive in your industry. To develop a business strategy:

•  Define your vision and goals: Start by outlining your long-term vision and setting specific, measurable, achievable, relevant, and time-bound (SMART) goals to guide your business decisions.

•  Understand your market: Conduct thorough market research to identify your target audience, competitors, and industry trends, helping you position your business effectively.

•  Analyze strengths and weaknesses: Perform a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) to understand your business’s internal and external factors.

•  Create an action plan: Break down your goals into actionable steps, assign responsibilities, and establish timelines to ensure accountability and progress.

•  Monitor and adjust: Regularly review your strategy’s performance, track key metrics, and be prepared to adapt to changing market conditions or unforeseen challenges.

Recommended: How Much Does It Cost to Start a Business?

Research Your Market

Researching your market is crucial for small business growth because it provides valuable insights into your target audience and their needs. By understanding customer preferences, buying behaviors, and pain points, you can tailor your products or services to meet demand more effectively.

Whether you’re a startup business or you’ve been in the industry for decades, market research minimizes risks by equipping you with data to make informed decisions. It helps you determine optimal pricing, choose effective marketing channels, and anticipate challenges in the competitive landscape.

💡 Recommended: Stages of Business Growth

Financial Management and Funding

Effective financial management and securing adequate funding are cornerstones for growing a successful business. Sound financial management ensures that resources are allocated efficiently, helping you track income, manage expenses, and maintain profitability. It allows you to create detailed budgets, forecast future financial performance, and allocate funds strategically toward areas with the highest potential for growth.

Securing proper funding is equally vital for scaling operations, investing in new technologies, or launching marketing initiatives. Whether through small business loans, venture capital, or grants, access to funding provides the capital needed to seize growth opportunities and expand your business.

Small Business Loans

Different types of small business loans allow businesses to hire more employees, increase inventory, and enhance marketing efforts. Loans can also enable businesses to address cash flow challenges or take advantage of time-sensitive opportunities, such as acquiring another company or launching a new product.

Grants

Small business grants can help small businesses grow by providing funding that doesn’t need to be repaid, allowing businesses to invest in expansion, equipment, or marketing. Grants can also support research, innovation, or community-focused projects, helping businesses achieve growth goals without increasing debt.

Recommended: 20 Small Business Grants, Programs, and Checklists

Acquiring Customers

One of the best ways to grow your business is by getting more customers. Getting more customers increases revenue, allowing your business to expand, invest in new products or services, and improve operations. You can acquire more customers through digital marketing and traditional marketing, and also by retaining the customers you currently have.

Digital Marketing

In today’s digital age, businesses must establish a strong online presence to attract customers. Digital marketing strategies like search engine optimization (SEO), social media marketing, and paid advertising can significantly expand a business’s reach.

Traditional Marketing

While digital strategies are essential, traditional marketing methods still play a valuable role in customer acquisition. Print advertisements, direct mail campaigns, networking events, and sponsorships can help businesses connect with local communities and establish credibility.

Retention

Acquiring customers is only the first step; keeping them engaged ensures long-term business success. Customer retention strategies include personalized communication, loyalty programs, and excellent customer service.

Recommended: What Are the 5 Stages of Business Growth?

Sales Techniques and Strategies

A well-structured approach to sales can improve conversion rates, enhance customer relationships, and maximize revenue. Tailoring your sales pitch to address customer pain points and offering solutions makes your product or service more appealing. Below are some key strategies to improve your sales approach:

•  Build rapport: Establish trust with customers by actively listening to their concerns and showing genuine interest in their needs.

•  Value-based selling: Focus on the benefits your product or service offers rather than just its features. Explain how it solves problems or improves their life.

•  Upselling and cross-selling: Encourage customers to buy complementary or upgraded products to increase the value of each sale.

•  Follow-up: Stay engaged with potential and existing customers through consistent communication to nurture relationships and secure repeat business.

Combining these techniques with a clear understanding of your sales process ensures better alignment with customer expectations, ultimately boosting growth and profitability.

Recommended: Business Line of Credit

Operational Efficiency and Scaling

Optimizing operations — including streamlining processes, reducing waste, and improving productivity — can lower costs and increase profitability. Implementing automation tools, such as customer relationship management (CRM) systems and inventory management software, helps businesses scale efficiently.

As demand grows, businesses should focus on hiring and training employees to maintain quality while expanding. Outsourcing non-core tasks can also free up resources for strategic growth.

Recommended: How to Pay Employees When Starting a Business

Innovation and Adaptation

Innovation and adaptation are key to staying competitive and driving business growth. Businesses must continuously evolve by introducing new products, improving services, and adopting emerging technologies. Keeping up with industry trends and customer preferences ensures long-term success.

Recommended: How to Write a Business Plan

Legal and Compliance Considerations

It’s important that your business operates within legal and regulatory guidelines. Compliance with local, state, and federal laws helps prevent fines, lawsuits, and reputational damage. Business owners should stay informed about industry-specific regulations, tax obligations, and employment laws to avoid potential legal issues.

Properly structuring your business — whether as an LLC, corporation, or sole proprietorship — affects liability and taxation. Securing necessary licenses and permits ensures your operations remain legitimate.

Regular legal audits and professional guidance from an attorney can help maintain compliance.

Performance Measurement and Growth

Measuring performance and growth can help you understand how well your business is progressing and help identify areas that need improvement. Tracking revenue, customer retention, and conversion rates helps you make data-driven decisions. Without measurement, it’s difficult to know what strategies are working and where adjustments are needed.

Recommended: Small Business Working Capital Loans

The Takeaway

There’s no one universal approach to finding success and business growth. Good strategies for how to grow a small business will likely differ from those that work for a mid-size or large company. It’s important to determine which strategies align with your resources, target audience, type of business, and goals.

As your business evolves, keep in mind that what worked to get it off the ground may not work as well for your next stage of growth. Referring back to your business plan can help you track progress and make changes as needed.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How much money do I need to start growing my small business?

Some businesses can grow with a few thousand dollars, while others may require significant investment. Creating a detailed budget and exploring funding options can help determine your specific financial needs.

What are the most effective marketing strategies for small businesses with limited budgets?

Small businesses with limited budgets can use cost-effective marketing strategies like social media marketing, content marketing, email campaigns, and local SEO. Networking, word-of-mouth referrals, and partnerships also help.

How can I secure funding if I have a limited credit history?

If you have limited credit history, you can secure funding through microloans, crowdfunding, grants, or business credit cards. Consider alternative lenders, peer-to-peer lending, or seeking investors. Building business credit, offering collateral, or getting a cosigner can also improve approval chances for loans from banks or credit unions.

When is the right time to hire my first employee?

The right time to hire your first employee is when your workload becomes overwhelming, demand exceeds your capacity, or growth opportunities are being missed. Ensure you have stable revenue, a clear job role, and the financial ability to cover wages, taxes, and benefits before making the commitment.

How do I know if my business is ready to scale?

Your business is ready to scale if you have consistent revenue growth, strong customer demand, efficient operations, and the infrastructure to handle expansion. A proven business model, reliable cash flow, and the ability to hire and manage more employees are also key indicators that scaling is a viable option.

Photo credit: iStock/SeventyFour

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q125-010

Vendor financing occurs when a company procures goods or services from a vendor without making immediate payment. Instead, the vendor agrees to extend that company debt or equity financing, or it’s willing to make a trade swap.

Vendor financing can be a good solution if a small business is having temporary cash flow issues and doesn’t want to apply for third-party financing. It might also be useful if the company were having trouble qualifying for a traditional business loan.

Whether this is a good idea for your business depends on the terms of the vendor financing agreement. Read on for a closer look at how vendor financing works, its pros and cons, and alternative funding options to consider when cash flow is tight.

What Is Vendor Financing?

Vendor financing, also sometimes referred to as trade credit, is when one company loans another company the money it needs to purchase its goods or services.

How the borrowing company will repay the loan to the vendor will depend on the agreement, but vendor financing typically takes one of three forms. The vendor gives you the goods or services in exchange for:

•  A promise of repayment (typically with interest)

•  Equity in your company

•  Goods or services you provide to them

Depending on the arrangement, the vendor financing may not cover the full cost of the purchase. In that case, you may need to make a down payment.

How Vendor Financing Works

While vendor financing allows borrowing companies to avoid applying for a small business loan with a traditional financing institution, there still needs to be some sort of loan agreement between both parties if debt is being created.

With debt financing, it can be a good idea to establish the following details before you sign off on the deal.

•  Loan term: When is payment expected in full?

•  Down payment: Does the borrowing company need to put down a minimum payment to receive the goods or services?

•  Interest: Will there be a financing fee and what will the rate be?

•  Collateral: Are the purchased goods to be used as collateral?

•  Payment: Is the borrowing company expected to make regular monthly payments or one balloon payment?

•  Fees: Are there to be any additional fees for the loan? What happens if a payment is missed?

If equity financing or a service swap is used instead of debt financing, then an alternative agreement would need to be drawn up.

Recommended: Business equipment financing

Vendor Financing Example

Here’s an example of vendor financing: A small flooring company needs to purchase $20,000 worth of materials to complete the floors of a new school. Normally, it would be able to make the purchase without any issues, but four of its past ten clients have yet to pay their invoices. As a result, the company is currently having temporary liquidity issues.

Because the flooring company has been working with its supplier for a number of years, the supplier is willing to provide the $20,000 worth of flooring materials if the borrowing company agrees to pay back the full amount within six months with 10% interest. They need to make an initial deposit of $2,000, followed by monthly installment payments. Because the flooring company’s contract with the school district is so large, the company readily agrees to the terms and conditions from the vendor.

Pros and Cons of Vendor Financing

The chart below captures the pros and cons of vendor financing:

Types of Vendor Financing

As mentioned above, there are three main types of vendor financing. Here’s a closer look at each type.

Debt Financing

With debt financing, the borrower receives the products or services but must pay back the vendor in regular installments with interest. If the vendor will only finance a percentage of the cost, the borrower will likely need to make a down payment. Should the borrower default on payments, the vendor writes the debt off as a bad debt. Further business between the two companies is unlikely, and the defaulting company’s reputation with other vendors is likely to be damaged as well since they didn’t practice good business money management.

Equity Financing

With equity financing, the vendor provides the borrower with the requested amount of products or services in exchange for equity in the borrower’s company. This means the vendor becomes a shareholder and will receive dividends and also weigh in on business decisions. Equity vendor financing tends to be more common with new companies that may have difficulty getting startup business loans from banks or other lenders.

Service Swap

A service swap is an agreement between two companies where no debt or equity is exchanged. Instead, both businesses agree that the services or products one offers are of the same value to the services or products offered by the other. In other words, it is an equal trade. This type of vendor financing tends to be more informal and only occurs between companies that already have a strong working relationship.

Recommended: Business line of credit

Alternatives to Vendor Financing

With so many different types of business loans on the market, there are a number of alternatives to vendor financing. Here are some other ways you may be able to get short- or long-term capital funding.

Merchant Cash Advance

A merchant cash advance (MCA) is a unique type of financial product that doesn’t involve traditional monthly payments. Instead, an MCA company gives you an upfront sum of cash that you repay using a percentage of your debit and credit card sales, plus a fee. MCAs can be handy for small businesses that need cash quickly, but tend to cost significantly more than other types of financing.

Invoice Financing

With invoice financing, you receive a cash advance on your outstanding customer invoices. When your customers pay you, you pay the lender back, plus fees. Since your invoices serve as collateral for the loan, invoice financing can be easier to qualify for than a traditional small business loan. However, costs tend to be higher.

Small Business Loan

There are a variety of small business loans on the market. Traditional bank and Small Business Administration (SBA) loans typically have the lowest interest rates, but can be difficult (and time-consuming) to qualify for. Online lenders often offer faster funding, but may charge higher rates. You may also consider short-term business loans vs. long-term ones.

The Takeaway

Vendor financing is a way to fund the purchase of goods or services from a vendor when cash is tight. However, it’s not your only option — and may not be your best one, since vendor financing often comes with higher interest rates than those charged by traditional lending institutions.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How does vendor financing work in retail and in financial services?

Vendor financing works in a similar way no matter what the industry. With this type of financing, the vendor selling you a product or service also finances it. Vendors can take many different forms, including business-to-business suppliers, payroll management firms, and security companies.

What are some risks of vendor financing?

There are risks on both sides of the deal. If a borrower is unable to make their payments on time, they risk ruining the working relationship they have with the vendor, which could jeopardize future business dealings with that company. For vendors, there is a risk that they will never get paid for their goods/services and have to write the loan off as a bad debt.

Are vendor financing and seller financing the same thing?

No. They are similar, but not the same thing. Seller financing refers to a form of real estate lending in which a property owner also serves as a mortgage lender. Vendor financing, on the other hand, is a business-to-business arrangement in which a vendor that is selling a product or service to a business also finances it.

What is the difference between a vendor and a lender?

A vendor is a seller who may offer credit to help the buyer purchase its products. The vendor is directly involved in the transaction. By contrast, a lender is a third party — such as a bank, credit union, or other financial institution — that provides money for a variety of business purposes. Such loans are not tied to a specific vendor or purchase. Typically both vendors and lenders are repaid with interest.

Is vendor financing secured?

Most vendor financing deals tend to be secured, meaning the buyer provides collateral — which may or may not be the purchased item itself (such as equipment or property). This reduces the vendor’s risk. If the buyer fails to make payments, the vendor can recover the debt by seizing the collateral.

Photo credit: iStock/Ridofranz

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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