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If you’re looking to start a nonprofit or planning to expand an existing one, you’ve got options for financial help. While larger organizations may have an easier time securing grants and corporate sponsorships, there are many other funding sources for smaller nonprofits or those that are just starting out. Here’s a look at how to get funding for a nonprofit of any size.

Why Do Nonprofits Need Funding?

While having a tax-exempt status can certainly help an organization save money, nonprofits still have a variety of costs they have to cover. Not-for-profit organizations typically need reliable revenue streams to fund their missions, develop education programs, and cover their day-to-day expenses (including rent, utilities, salaries, and supplies).

At the same time, nonprofits need to be careful about how they acquire money. In order to maintain nonprofit tax-exempt status with the Internal Revenue Service (IRS), any earned income needs to be directly related to the organization’s mission. Many nonprofits meet their budgets through a combination of external funding (e.g., donations and fundraising initiatives) and self-generated funds (e.g., sales of merchandise, fees charged for services, and membership fees).

Types of Nonprofit Funding Sources

There is a wide array of financial sources that may be available to a nonprofit, ranging from government grants and private foundations to membership fees and donation crowdfunding.

There’s no one-size-fits-all approach to choosing nonprofit funding sources. Some methods might work for your organization that wouldn’t be a good fit for others, or something that hasn’t worked in the past could be a good option for you at this point in your organization’s growth.

Recommended: Guide to Crowdfunding for Small Business

Building a Robust Funding Strategy

Most nonprofits turn to funding from grants. They’re often available from the government at the local, state, and federal levels, as well as from business associations, corporations, and foundations. While grants usually don’t need to be repaid, they sometimes come with specific conditions as to how exactly you can use the money. Also, competition for these awards can be stiff.

When searching for grants, you can check Grants.gov, which is the largest database of federal grant opportunities. You may also want to look locally, as many grants targeted for nonprofits are offered at the state and local level.

You can also find grants targeting entrepreneurs with specific characteristics, as in the following:

•   Small business grants for minorities

•   Grants for women-owned businesses

•   Grants and loans for Hispanic-owned businesses

•   Small business grants and loans for veterans

Grants, however, can’t do it all. A smart funding strategy can guide you, laying out a roadmap for you to follow at every stage of the fundraising process.

Crafting a Mission Statement

Your mission statement serves as a clear representation of your vision to those outside the organization. It’s an essential tool for promoting and positioning your nonprofit organization in the minds of others. Be sure to communicate the “whys” to your nonprofit and include action items for what can be accomplished. When it comes to the writing’s tone, use conversational language.

Grant Writing and Application Techniques

Even a startup nonprofit can qualify for a grant. To succeed in receiving a grant, however, small business owners must submit a proposal that aligns with the mission of the funders or government agencies that provide the funding. Proposals require clear, concise writing, a strong executive summary, and a well-developed project description.

The most important thing you can do when writing a grant proposal is tailor your grant specifically for the grant package in front of you. Follow its instructions carefully and in order. This includes any instructions on format, style, and timeframe.

While it’s key to clearly define success scenarios, don’t forget that you’re essentially writing a compelling story that will outline the impact of your business on people’s lives.

Donor Cultivation and Relationship Management

Individual donations are one of the largest sources of funding for many nonprofits, so it can be smart to make individual donors a key focus of your fundraising efforts.

If you don’t have one already, you’ll want to create an online donation page that enables recurring donations.

Some ways to increase the support you get from individuals include:

•   Promoting your cause on social media

•   Leveraging text-to-give campaigns

•   Asking for donations at community events

•   Mailing out fundraising materials

•   Hosting charity events

•   Organizing peer-to-peer (P2P) fundraisers

Alternative Funding Sources

There are many different types of crowdfunding, but the one used most by nonprofits is donation-based crowdfunding. In this type, you ask large numbers of people to donate small amounts of money to your organization. You can launch a crowdfunding campaign to raise money for a specific program within your organization or as a general donation to the cause. Crowdfunding can also dovetail with your social media campaigns and simplify online giving for your donors.

While donation crowdfunding can be a low-cost and effective way to reach potential supporters all over the world, keep in mind that crowdfunding platforms typically charge fees and it can take a fair amount of time and effort to create a compelling and successful crowdfunding campaign.

Membership fees can also create a reliable and recurring source of revenue for your nonprofit. The structure could vary depending on your organization’s mission and target audience, but many nonprofits offer some sort of incentive to encourage potential members to join. This might be online name recognition, a free subscription to your organization’s magazine or newsletter, or discounted tickets to events.

Membership also creates a sense of community and ownership among your supporters, which might encourage them to promote your nonprofit on your behalf.

Unlike other forms of fundraising, earned income comes from the sale of products or services. Nonprofits can generate revenue by selling merchandise (such as t-shirts), offering instructional classes, selling tickets to events, creating and selling publications, or renting out their spaces for events. Just keep in mind that earned income must be related to the mission of the organization or it can be taxed as unrelated business income.

If you’re thinking about selling products or services to raise money for your nonprofit, it can be a good idea to consult a tax specialist who routinely works with nonprofits for guidance.

Legal and Compliance Considerations

Fundraising is governed by a mix of state and federal regulations. These laws are designed to protect donors, the general public, and charities themselves from fraud and from misleading practices.

When you secure 501(c)(3) or another nonprofit tax-exempt status from the IRS, your organization becomes a recognized nonprofit at the federal level. However, charitable solicitations themselves are regulated at the state level. This means that you must register to fundraise in the state jurisdictions where your nonprofit actively solicits donations.

Compliance with these rules and regulations helps maintain public trust in your organization and in the nonprofit sector generally. Violations can lead to loss of credibility and trust among potential donors. Additionally, noncompliance may result in legal consequences, including fines and, in serious cases, the shutdown of charities found to be fraudulent.

Which Funding Sources Are the Right Fit for Your Nonprofit?

The right fundraising model for your nonprofit will depend on its size and mission. Here are some steps that can help you home in on the best sources of funding for your cause.

1.    Analyze your current approach to funding. Do your current nonprofit funding sources deliver a good return on investment? Are they all aligned with your mission, vision, and values? Is there room to add other funding sources? Are there some you might want to move away from?

2.    Explore your options. You may want to look at the funding approaches of other, similar nonprofits. Are they doing something that could work for you? Also consider having a brainstorming session with your team, inviting them to get creative and think outside the box.

3.    Make a short list of feasible options. Once you have a list of possible new funding streams, you’ll want to narrow it down to options that are sustainable and replicable. After you have a short list, you can evaluate how much each funding source will cost, and how much money your organization could feasibly garner from each one.

4.    Select funding model(s) to implement. Based on the information you’ve gathered in the above steps, you’ll next want to decide on one or two funding models to implement and develop a plan to put those models into action.

Recommended: 7 Differences Between Business Grants and Loans

The Takeaway

Nonprofit funding can come from a variety of sources, and many organizations rely on multiple revenue streams to pay their bills and keep their programs funded. For example, one nonprofit might be funded 40% through grants, 40% through events, and 20% through a membership program. Another might be 70% funded through donations, 20% through grants, and 10% through events. And the balance a nonprofit uses may need to change over time as the organization’s needs develop or expand, so it’s wise to review your model regularly to make sure it’s still working well for you.

Ready to grow your business? SoFi Small Business Loans can give you fast access to the capital you need. Check your eligibility in minutes.

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FAQ

What is the biggest source of funding for reporting nonprofits?

For many nonprofits, the majority of funding comes from individual donations, though that’s not necessarily the only source.

What are the 4 types of nonprofits?

There are four major types of nonprofit organizations: Public charities, private foundations, social welfare organizations, and trade associations.

How do you start a nonprofit without any money?

To start a nonprofit with no money, you’ll need to write a business plan, build a board of directors, find an online fundraising tool that’s free to start, gather donations (from friends, family, and board members), find an attorney willing to donate their services to help you register your nonprofit, and plan free and low-cost of fundraising events.

If I am the founder of a nonprofit, can I pay myself?

It is legal for nonprofit founders and officers to receive a salary for their work for the nonprofit. As a founder, you can be paid a salary, but it has to be in line with the work you’re doing and the number of hours you’re putting in.

Are nonprofits taxed?

Nonprofit status may make an organization eligible for certain benefits, such as state sales, property, and income tax exemptions; however, this status does not automatically grant exemption from federal income tax.

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Photo credit: iStock/South_agency

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

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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.

SOSMB-Q426-001

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Strong financial performance is key to a company’s long-term success, but it’s a subjective evaluation. There’s no single metric that defines a business’s financial health. Rather, a company’s performance is based on multiple factors, including its revenue, expenses, assets, liabilities, and profitability.

Because financial performance takes a broad view, there are lots of different levers companies can pull to improve it. Here’s a closer look at what financial performance means and strategies to enhance it.

What Is Financial Performance?

Financial performance is a broad view of a company’s overall health. It takes multiple dimensions into account, such as revenue, operating expenses, cash flow, and debts, rather than looking at any one metric in isolation.

There are lots of stakeholders in a business, from creditors to investors to employees to management. All of these stakeholders have a vested interest in a company’s financial performance and long-term success.

The Securities and Exchange Commission (SEC) requires public companies to share information on their financial performance annually with Form 10-K. This form provides stakeholders with up-to-date data on a company’s finances. It’s accessible to the public in the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database.

Core Financial Performance Metrics

There are a variety of metrics you can use to evaluate a company’s financial performance, including profitability ratios, liquidity metrics, and others.

Profitability Ratios (Gross Margin, Net Profit Margin, ROI)

Whether or not a business is profitable is key to its financial performance. Here’s how to value a business in terms of its profitability:

•   Gross margin: The gross margin tracks how much revenue a business keeps after subtracting the cost of goods sold (COGS). It’s typically calculated as a percentage. A higher percentage points to profitability, while a low percentage means there’s room for improvement.

•   Net profit margin: Similar to the gross margin, the net profit margin measures the amount of revenue a company receives from its sales. However, it additionally subtracts business expenses and taxes to get a clearer picture of net profit.

•   Return on investment (ROI): ROI measures how much profit a business makes relative to the cost of an investment. A simple formula for ROI is net profit divided by the cost of the investment. When a business is measuring its financial performance, it might look at the ROI of specific initiatives, such as a marketing campaign, a new product line, or the purchase of equipment or technology.

Liquidity Metrics (Current Ratio, Quick Ratio, Cash Flow)

Liquidity metrics measure a company’s ability to pay off short-term obligations with liquid assets. Here are some small business financial ratios to know.

•   Current ratio: This term refers to a company’s solvency. It divides current assets by current liabilities to determine whether a company can cover short-term obligations.

•   Quick ratio: This measurement divides a company’s liquid assets by its current liabilities. Unlike the current ratio, it doesn’t take inventory into account, but instead focuses on “quick assets” such as cash and accounts receivable.

•   Cash flow: As the name suggests, cash flow refers to how money moves in and out of a company. A positive cash flow means there’s more money coming in than going out, while a negative cash flow indicates the opposite.

Operational Efficiency (Inventory Turnover, Asset Utilization)

Another important metric when evaluating a company’s financial performance is the efficiency of its operations. Some factors to measure operational efficiency include:

•   Inventory turnover: This tracks how much inventory a company sells within a certain time period. Stakeholders may look at how often a company sells out of its entire stock of inventory.

•   Asset utilization: From equipment to technology, business assets can be expensive. Asset utilization looks at how efficiently a company is using its assets. It considers the value a company is getting out of its assets vs. the cost of acquiring and maintaining them.

Solvency and Leverage (Debt-to-Equity, Interest Coverage)

Solvency and leverage are key factors when assessing a business’s financial performance. They have to do with a company’s ability to meet debt obligations and how much it relies on debt to maintain operations. Some measures of solvency and leverage include:

•   Debt-to-equity ratio: This ratio compares a company’s debt to its equity. A higher ratio can be riskier, since it reveals that a company is financed more by small business loans than by capital.

•   Interest coverage ratio: This ratio compares a company’s earnings (before interest and taxes) to the interest charges it must pay on debt. It reveals how easily a business can afford interest expenses.

8 Strategies to Improve Financial Performance

Since financial performance depends on a variety of factors, there are lots of strategies you can use to improve it. Here are some financial performance tips.

1. Revenue Growth Optimization

Optimizing revenue may be an obvious way to boost financial performance, but it doesn’t happen by accident. A business can come up with a revenue growth strategy by analyzing various factors, including pricing, inventory, demand, and market conditions. Revenue optimization may come through acquiring new customers, entering new markets, innovating products, diversifying income streams, or pursuing other sources of growth.

2. Cost Reduction and Expense Management

Bringing down costs is another way to increase cash flow and improve solvency. As a business owner, you can review all your expenses closely to identify any areas of waste. You might also negotiate with vendors to bring down costs. Reducing expenses can improve profitability, as long as it doesn’t sacrifice product quality or customer experience.

3. Cash Flow Enhancement

Enhancing cash flow can help a business cover its financial obligations and operating costs. A business may analyze its cash flow on a monthly basis to see where cash is coming in and going out of the business. If cash flow is trending negative, consider ways to turn things around, such as cutting costs, boosting revenue, or improving accounts receivable collection.

4. Working Capital Improvements

Working capital refers to the money a business has on hand to meet its short-term obligations. You can calculate it by subtracting your business’s current liabilities from its current assets. A negative result indicates financial problems, while a positive result means your business may have the means to cover operating costs. At the same time, high working capital isn’t necessarily the goal, as it can suggest that a business isn’t investing its profits back into growth.

5. Strategic Debt Management

Taking on debt can improve a business’s financial performance if it fuels growth. A business might take out a startup business loan, SBA loan, or business line of credit, for example, to hire employees, invest in marketing, or expand to a bigger facility. Equipment financing can be used to purchase equipment. Before borrowing, though, a business should carefully consider a loan’s interest rate, fees, monthly payments, and other terms to make sure it’s affordable. Businesses may also consider debt management strategies such as consolidation to simplify repayment or potentially save on interest.

6. Operational Process Improvement

Taking a magnifying glass to your business’s processes can help you make them more efficient and get better results. You may enhance your accounts receivable process by sending invoices more quickly or making it easier for customers to pay. Or you could streamline your supply chain to cut costs and receive products faster. Continuously monitoring your processes can help you improve them, cut out inefficiencies, and boost your business’s bottom line.

7. Data-Driven Financial Decision Making

Financial performance management shouldn’t happen in a vacuum. You can rely on financial analytics and other data to make informed decisions about business processes, growth, and investments. Collecting data before and after a decision can help you evaluate whether it’s working or if you need to change course.

8. Strategic Financial Planning

Strategic financial planning is how your business can achieve its long-term goals. It’s all about defining objectives and making sure they align with your current practices. This planning may be a continuous process that evolves as your business grows.

Recommended: Improving Business Performance

Implementing Financial Performance Improvements

There are many ways that companies can improve their financial performance, but they must take action on these strategies and measure results as they go. Reducing expenses, managing debt, and making processes more efficient can all benefit a company’s financial well-being.

Before making changes, measure key metrics to see where things stand. Then, you can continue to collect data while you implement new strategies to measure how effective they are.

Recommended: Improving Business Cash Flow

The Takeaway

There are various ways to enhance business performance, such as cutting waste and leveraging debt strategically. Nonfinancial metrics, such as customer satisfaction and employee happiness, can also contribute to a company’s bottom line. Taking a multifaceted approach, and measuring results as you go, can help you improve a business’s financial performance and realize its long-term vision.

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With SoFi Small Business Loans, it's fast and easy to get the financing your business needs to thrive.

FAQ

How often should a business evaluate its financial performance?

A business may evaluate its financial performance on a monthly and quarterly basis to stay on top of trends. Most businesses also perform a thorough review annually to compare their financial performance from one year to the next.

Which financial performance metrics are most important for small businesses?

Some of the most important performance metrics for small businesses include gross and net profit margins, operating cash flow, working capital, and debt-to-equity ratio. Together, these metrics can provide insight into a business’s profitability, cash flow, and overall financial health.

How does cost control affect financial performance?

Cost control has the potential to improve financial performance, as it involves a thorough review of your business expenses to find areas to save. Reducing costs — and preventing them from spiraling out of control — can improve cash flow and increase profitability. At the same time, make sure that reducing costs doesn’t diminish the quality of your products or customer experience.

What’s the difference between financial performance and profitability?

Profitability is a specific metric that measures how much money a business makes after subtracting its expenses. Financial performance, on the other hand, is a broad measure of a company’s well-being and includes profitability, cash flow, liabilities, and other metrics.

How do nonfinancial metrics impact overall financial performance?

Nonfinancial metrics, such as customer satisfaction, employee engagement, and operational efficiency, can impact a business’s overall financial performance. Dissatisfied customers, for instance, could be an early signal of profit loss, while a lack of employee engagement could prevent the company from reaching its growth goals.

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Photo Credit: iStock/Liubomyr Vorona

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

SOSMB-Q426-081

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Whether your company is feeling confident or concerned in a time of economic uncertainty, business performance improvement should always be a priority. But how do you undertake a strategic plan that focuses on the right metrics?

Keep reading for seven ways to enhance business performance for any type of company.

Understanding Business Performance

Before you create a plan to improve business performance, get a sense of the right metrics to track for your specific company’s needs.

Key Performance Indicators (KPIs)

Establishing clear KPIs helps to make sure you’re focusing on the right targets as part of the company’s performance review. Operational indicators measure things such as efficiency, budgets, and financials. Strategic KPIs include elements such as impact, awareness, and profitability.

Conducting a Performance Assessment

Once you have KPIs in place, compile and record relevant existing data from the beginning. This gives you a point of reference as time goes on. Then create a timeline and tracking system.

While you may have large-scale organizational goals, break those down into departmental responsibilities. For instance, the sales team must be brought in to work on operating income and revenue goals, while marketing should oversee brand awareness metrics. The experts in those departments can then create the tasks to support the KPIs.

Once implementation begins, set a schedule for how frequently leadership will review progress. Then you can assess what operations are successful, which ones need additional work, and which ones appear to be subject to seasonal business cycles.

Later, presenting these performance assessments and other data about your company’s financial progress may help you persuade lenders to approve a small business loan.

7 Strategic Approaches to Improve Business Performance

Learn how to improve business performance with seven key steps.

1. Strategic Planning and Goal Setting

There are several approaches to creating a strategic plan for your company. One popular method is a SWOT analysis — the acronym stands for strengths, weaknesses, opportunities, and threats.

Evaluating each of these areas can give you a sense of what areas need improvement and what future challenges you should be prepared for. This information can help you prioritize goals, including metric-based KPIs as well as less tangible ones.

2. Financial Management and Optimization

One effective starting point for improved business performance is a review of your current financials. Start with your operating expenses and identify any spending categories that can be reduced. Also, complete an asset inventory to see if there are any hard assets you could sell. And if you have equipment financing coming to an end, make a plan for those assets as well.

Finally, look at the price structure of your goods or services. Are they in line with the market? Can you offer more creative pricing strategies, such as bundling or upselling, to increase revenue? This is the perfect time to evaluate how you charge your customers and which direction to go with prices.

Recommended: Adjusted EBITDA: The Ultimate Financial Performance Metric

3. Operational Efficiency Enhancement

The time and effort it takes to run your business affects both sales and revenue. Enhancing your operational efficiency is a crucial part of the business improvement process.

First, look at your accounts receivable processes to determine if there are ways to expedite customer payments. This simple step can greatly improve your cash flow and might even help reduce your reliance on a business line of credit. Consider early payment discounts and automated invoice software with built-in reminders.

From there, you can review other processes, such as fulfillment and accounting.

4. Technology Integration and Digital Transformation

As you identify operational areas that could be more efficient, prioritize those that could have a significant impact and consider investing in better technology. From automated marketing campaigns to better accounting software, there is often a lot of room for IT improvement.

It’s also important to integrate all of your existing tech to maximize performance. For instance, your customer relationship management (CRM) database could connect with your marketing software to avoid duplicate work in managing customer profiles.

Recommended: Startup Business Loans

5. Human Resource Development

Change is happening fast, especially when it comes to AI, hiring trends, and employee development. In addition to creating a short-term strategy for HR development, consider a longer time horizon to anticipate your business needs in 5-10 years.

Identify the skills and attributes that employees will use to sustain and grow your company in the years ahead. Then you can create the upskilling and hiring programs that center on those.

6. Customer Experience Optimization

Another way to improve business performance is to maximize the customer experience. Many experts agree that it’s cheaper to retain customers than to acquire new ones. That means you’d do well to review all of your customer touchpoints, both online and in person. Start tracking their data so you can analyze what channels are successful and which ones have the least engagement.

Then use that information to create a customer journey map and determine what the experience is like from awareness to purchase. What pain points cause friction in moving a customer through the sales funnel? From there, you can make changes and test results to create a better user experience.

7. Marketing and Sales Alignment

Getting your marketing and sales teams on the same page can have a major impact on your business. In fact, data shows that marketing involvement can increase conversions from target buying groups to the sales pipeline by 65%, compared with cold outreach. Creating communication channels between the two departments can help to maximize lead generation and closed deals.

For instance, sales staff can educate the marketing team on common questions or pain points felt by their leads. That helps marketing refine its messaging to better target strong leads. Short, automated processes should be in place to hand off marketing leads to the sales team to maximize momentum. Bring both teams together to align in a way that makes sense for your company and goals.

Measuring Improvement Success

If you’ve created clear KPIs and a timeline for checking on progress, it should be easy to measure and track the success of your improvement efforts. But don’t give up if you don’t see progress right from the start.

Use all of the data your company gathers to adjust your strategy in each area. By continually refining, you’ll soon figure out effective ways to enhance business performance.

The Takeaway

Especially in turbulent times, businesses must look for opportunities to improve in order to stay profitable. With clear planning, greater efficiency, shrewd hiring, and useful metrics in place, you’ll be able to gather huge amounts of data that can inform every aspect of your operations. And the right data can help you increase your business performance over time.

Ready to grow your business? SoFi Small Business Loans can give you fast access to the capital you need. Check your eligibility in minutes.

With SoFi Small Business Loans, it's fast and easy to get the financing your business needs to thrive.

FAQ

What does business performance mean?

Business performance means how well a company does in a number of areas. It usually includes broad metrics such as profitability and growth. Depending on the industry, business performance could also include things such as customer retention or conversion rates.

How can I measure the performance of my business?

Start by identifying key performance indicators that are significant to your business. These generally include financial and operating metrics. Then analyze individual areas and departments to see where you can improve costs and efficiency.

How often should I review my business performance metrics?

Create a routine schedule for reviewing your business performance metrics. Typically, this should be monthly, quarterly, and annually, but the departments actually working on the tasks may also consider reviewing metrics on a weekly basis.

How does employee engagement impact business performance?

Research shows that employee engagement is associated with better business performance. For instance, data from Gallup shows that companies with highly engaged workforces have 23% higher profitability and up to 18% higher productivity.

What’s the impact of company culture on performance?

Company culture does impact business performance. Research shows that companies with strong workplace cultures are nearly twice as likely to report significant revenue growth as companies with weaker cultures.

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Photo credit: iStock/NoSystem images

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

SOSMB-Q426-080

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If you’re considering a small business loan, it’s important to familiarize yourself with the different types of small business loan fees. In addition to interest rates, fees can impact how much a small business loan ultimately costs.

Lenders charge fees on small business loans to cover a variety of costs, such as loan application and origination, check processing, and underwriting, and you could also face fees for late payment or prepayment. Which types of fees apply will vary depending on which lender you use and the type of loan you get.

Keep reading to learn more about the different types of small business loan fees and additional funding options available for small businesses.

Why Choose a Small Business Loan?

No matter how fantastic an idea may be, in most cases, it can’t become an actual business without the working capital to get it off the ground. If you’re not yet ready to pitch investors and don’t have the personal funds to bootstrap your business, you may want to learn about how a small business loan can help you turn your business idea into a reality.

Of course, small business loans are for more than just startups. Whether you’re looking to hire more employees, purchase more equipment or inventory, or just scale your idea from your bedroom to a coworking space, small business loans can provide the capital to make it happen.

Some reasons a small business loan may be right for you include:

•   You want to build business credit, potentially allowing you to qualify for larger loans in the future.

•   You want to scale your business.

•   You want to make your business more efficient with new equipment.

•   You want to purchase more inventory.

•   You want to hire and train more employees.

Before taking out a small business loan, though, it’s important to ensure you have the financial foundation to manage your loan debt.

Recommended: 10 Things Business Loans Can Be Used For

Small Business Loan Rates and Fees

Here are some common fees associated with small business loans.

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Application Fee

Lenders incur certain fees when processing your application (e.g., credit checks and property appraisals). This fee covers those costs, and it will apply regardless of whether your application is approved.

Origination Fee

Lenders charge origination fees to cover their administrative costs, such as phone calls, emails, and interviews necessary to finalize a small business loan. The amount of this fee varies from lender to lender.

Check Processing Fee

If you make your loan payments via check, you may be charged a fee to cover the time and labor it takes to process a check. You may want to keep this in mind when deciding how you’ll make your loan payments.

Guaranty Fee

If you’re taking out a loan through the Small Business Administration (SBA), you’ll likely have to pay a guaranty fee. While the SBA guarantees loans, it doesn’t make loans, and thus generally assesses this SBA loan fee for its involvement.

Late Payment Fee

Like many loans, small business loans typically charge a fee when you make a late payment. You’ll want to ensure you set up a plan to make your loan payments on time to avoid this fee.

Underwriting Fee

The process of underwriting can be tedious — your lender needs to comb through your business’s finances and review market research and historical trends. The underwriting fee covers the cost of performing this task. It could either be charged as a percentage of the loan amount or a flat fee.

Prepayment Fee

Some lenders charge you for paying your loan off too early. They may do this for a variety of reasons, but one might be because they lose money in interest charges when you pay your loan principal before it’s due. This is an important fee to be aware of when mapping out your payment plan.

Recommended: Guide to Typical Small Business Loan Requirements

Additional Funding Options

If these fees don’t sit well with you, there are other options to consider that may make funding your business more accessible to you.

Family and Friends

Many people start their business with family loans, which is essentially money borrowed from family and friends. Using these individuals as initial investors can help you stay out of commercial debt, meaning that you can wait to apply for a small business loan when you might need to borrow a larger sum.

However, going into business with loved ones could be a risk. It might sour the relationship if things go south.

Crowdfunding

A number of small businesses have successfully been funded through sites such as Kickstarter, GoFundMe, and Indiegogo. A great idea with a strong marketing plan could generate enough excitement and financial support to get things going.

Keep in mind that crowdfunding sites generally require a percentage of the funding received. Additionally, there could be a risk of idea theft or plagiarism by putting your idea out there early.

Credit Card

You could turn to credit cards as a quick route to getting capital for your business without a lengthy application process. However, interest rates may be high. Further, carrying significant credit card debt could potentially impact your credit score, affecting your future chances of qualifying for loans.

Recommended: Comparing Personal Loans vs Business Loans

The Takeaway

Small business loans can charge a variety of fees, including application fees, origination fees, underwriting fees, guaranty fees, and others. Some fees are avoidable, including bypassing check processing fees by opting for another payment method and steering clear of late fees through consistent on-time payments. Which fees will apply will ultimately depend on the lender and loan type, but fees can play a role in how much a small business loan ultimately costs.

Ready to grow your business? SoFi Small Business Loans can give you fast access to the capital you need. Check your eligibility in minutes.

With SoFi Small Business Loans, it's fast and easy to get the financing your business needs to thrive.

FAQ

What are the most common fees associated with small business loans?

Common fees include application fees, origination fees, underwriting fees, guaranty fees, and administrative fees. These charges can vary depending on the lender and loan type. It’s important to review the fee structure before committing to a loan.

How do origination fees impact the total cost of a loan?

Origination fees are typically charged as a percentage of the loan amount and are deducted from the loan proceeds. This means you’ll receive less than the total loan amount, effectively increasing the cost of borrowing.

What is a guaranty fee, and when is it applicable?

A guaranty fee is commonly associated with Small Business Administration (SBA) loans and is charged to cover the government’s guarantee of a portion of the loan. This fee is usually a percentage of the guaranteed portion and can add to the overall loan cost.

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This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

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An income statement, also known as a profit and loss statement (or P&L), summarizes your company’s financial transactions. It shows you how much you earned and how much you spent for a specific reporting period, which may be one month, one quarter, or one year.

An income statement is an important tool for any business owner because it lets you know whether your business made a profit or took a loss during the period being reported. It also helps evaluate past performance, predict future performance, and determine if changes need to be made.

Read on to learn what goes on an income statement, how to read an income statement, and how it can help you grow your business.

What Is an Income Statement?

An income statement shows your company’s income and expenditures. It also indicates whether your company is making a profit or taking a loss for a given period, which could be one month or one quarter.

An income statement is one of three key financial statements that help you understand the financial health of your business. The other two are the balance sheet and cash flow statement.

One way to think about a balance sheet vs. an income statement is that a balance sheet tells you where you are right now, whereas an income statement tells you how you got there.

A single-step income statement displays a company’s revenue, expenses, gains (income from other sources), and losses (one-time or unusual costs) to arrive at its net income. The equation is a simple one:

Net Income = (Total Revenue + Gains) – (Total Expenses + Losses)

Large corporations that have multiple business segments offering a mix of products and services will typically use a multi-step income statement. Multi-step statements, which separate operating and non-operating revenues and expenses, may also include gross profit, earnings before tax, taxes paid, and net profit.

How to Read an Income Statement

An income statement consists of different line items. Each line item is a category (such as expenses) that may be further broken down into smaller categories (such as wages or rent).

As you read through an income statement, you follow a linear path from the top line (the total money you’ve made before any expenses are taken into account) to the bottom line (the actual profit you earned). Along the way, you see how the top line amount gets whittled down as the money is used to pay for the cost of creating your products or services and keeping your company running.

Many business owners focus exclusively on the bottom line — their net profit — but it can also be important to look at your sales revenue. Often, there’s only so much you can do to improve your bottom line by cutting expenses. At a certain point, you may also need to increase your revenue in order to grow your business.

Key Components of an Income Statement

What goes on an income statement will depend on the type of business you own. However, the following categories are often included in an income statement.

Revenue

Sales revenue is how much money the company made from sales or services within a given time period. If your company has multiple revenue streams, each will be a line item under the revenue category of the income statement.

For some businesses, revenue needs to be further broken down into operating (revenue from the business’s core activity, such as selling a product) and non-operating (revenue generated from other activities, such as installing or maintaining the product it sells).

You may need to factor in gains as well. Gains are a specific type of non-operating income (aka other income). They generally result from an event that has nothing to do with the company’s primary source of income. Gains may include selling of assets, lawsuit settlements, or investments in financial instruments.

Expenses

One major expense is the cost of goods sold, or COGS. This figure is based on how much you pay to create your products and includes only costs directly associated with those sales. For example, costs associated with goods may include labor, parts, and materials.

If the company is a service business, this line item may be called cost of sales and includes the cost of paying wages and providing the supplies you need to perform those services.

In addition to the COGS, you also want to include expenses that are not directly associated with your core business, such as administrative costs (e.g., rent and utilities), marketing and advertising, interest paid on a loan, and research and development expenses.

Depreciation is another expense that may also be included if you spent a large amount on an essential piece of equipment and you’re depreciating part of its value every accounting period.

Tracking and categorizing expenses as you go will make compiling this part of your income statement much easier.

Recommended: 22 Small Business Tax Deductions to Know in 2025

Gross Profit

Gross profit is sometimes included in an income statement and is calculated by subtracting the COGS (or cost of sales) from total sales revenue during the statement period. Gross profit doesn’t take into account general business expenses, interest payments on loans, or income tax.

Operating Income

Once you calculate gross profit, you can subtract selling, general, and administrative expenses to calculate operating income. This amount represents the working capital available to the business after all expenses are paid. Operating income tells you how much your business made after subtracting all internal costs (which you can control) but before paying external expenses.

Net Income

A company’s net income (aka net profit) is the bottom line of an income sheet. It’s calculated by subtracting total expenses, including interest charges and taxes, from total revenue. Net income tells you what your company actually earned (or lost) during the accounting period.

What Are Income Statements Used For?

Income statements show a company’s sales, gains, losses, and overall profit or loss during a certain period. This information can be used to make financial projections. For example, if income statements show a 10% increase in sales year over year, it suggests the company can expect continued growth the following year. It’s not a guarantee, but a reasonable expectation.

This information can also be used to help business owners decide whether they can boost profits by increasing revenues, decreasing costs, or both. They can then refer to later income statements to see if the strategies have paid off.

Below are some other ways in which an income statement can be useful for a small business.

Frequent Reports

Unlike many other financial statements, which are done annually, income statements are typically generated quarterly or monthly. As a result, they can be more helpful in tracking business performance. Because of their frequency, income statements allow owners to pick up on small issues before they snowball into larger and potentially more expensive problems.

Pinpointing Expenses

When a company has a large number of expenses, it can be easy to lose track of where all of the money is going. An income statement analysis shows owners if expenses are on, over, or under budget and also highlights unexpected expenses. The statement could reveal ways for the company to upgrade or streamline operations, possibly with a small business loan. This could help decrease costs and, in turn, improve net income.

Analysis of the Business

A company seeking an infusion of funds from either an outside investor or a lender will need to show how it’s performing financially. For example, when applying for a business loan, you will typically need to provide your income statements.

Recommended: 15 Types of Business Loans to Consider

Limitations in Income Statements

Income statements are useful but they have their limitations. The biggest limitation in income statements is reliance on assumptions. Companies may assume an asset is going to depreciate less than it actually does, or they may predict how many products will be returned in a given quarter. More than likely, both of these projections will not be exact, which causes the income statement to be flawed.

Getting the assumptions wrong can be extra perilous for pro forma income statements, which rely on specific expectations or hypotheticals to project a company’s future income, expenses, and profitability.

On a smaller scale, inaccurate assumptions can also cause problems on budgeted income statements. A budgeted income statement, used to forecast business activity in the near term, relies more on current information than on assumptions. But it does call for projections of future expenses, revenues, and profit, any of which may be incorrect.

Other limitations in income statements include being time-consuming to prepare and inaccurately reflecting how well (or poorly) a company is performing. However, overall, income statements can provide a good summary of the company’s financial health.

Income Statement Example

Below is an example of a simple, single-step income statement for a small business.

	REVENUE
$40,000	Merchandise sales
$10,000	Revenue from installation
$50,000	Total revenue
	EXPENSES
$20,000	Materials
$800	Wages
$2,500	Rent
$225	Utilities
$450	Advertising costs
$350	Administrative costs
$24,325	Total expenses
	GAINS
$1,500	Income from vehicle sale
	LOSSES
$1,500	Lawsuit

It may be worthwhile tracking down income statement examples from companies similar to yours to see how all the sections fit together.

GAAP Income Statements

U.S. public companies report their earnings on income sheets based on GAAP, or generally accepted accounting principles. GAAP is a standardized set of rules, which allows investors to analyze and compare companies’ statements against one another objectively.

GAAP income statements consist of several different business financial statements, including the balance sheet, the statement of owner’s equity, and the cash flow statement. This provides a detailed look at a company’s revenue and expenses, and it standardizes how the information is presented to creditors and shareholders.

One type of income statement that’s not recognized under GAAP is the variable costing income statement. Although GAAP financial reports do not include variable costing, business owners often use this method to calculate how many units need to be sold before the company starts earning a profit.

The Takeaway

An income statement is a key source of information about many factors that affect a company’s profitability. It shows a company’s expenses, income, gains, and losses. That information goes into a mathematical equation to arrive at the net profit or loss for the given time period.

An income statement helps business owners decide whether they can boost profits by increasing revenues, decreasing costs, or both. Being able to see this information at short intervals can help business owners make timely decisions.

Ready to grow your business? SoFi Small Business Loans can give you fast access to the capital you need. Check your eligibility in minutes.

With SoFi Small Business Loans, it's fast and easy to get the financing your business needs to thrive.

FAQ

Is there a special format for income statements?

Income statements follow no universal format but typically include three sections: revenue, expenses, and net income. Businesses can use single-step or multi-step formats, with the latter providing detailed breakdowns such as gross profit and operating income, offering greater insight into financial performance.

What is an income statement’s most important part?

The most important part of an income statement is the bottom line — net income. This tells you exactly how much your business is making, after expenses.

What is the difference between a balance sheet and an income statement?

A balance sheet is a record of your company’s current debts, assets, and equity. An income statement tracks a company’s income and expenditures over a certain period of time and shows overall profit or loss during that period.

What are some common errors in interpreting income statements?

Common mistakes include ignoring explanatory notes, overlooking the company’s cash flow, misinterpreting measures of profitability, neglecting accounting changes, and focusing too much on short-term results. Explanatory notes give context and additional details that clarify the numbers. Changes in accounting policies can distort year-over-year comparisons, as can random factors that may have impacted short-term results.

How often should income statements be reviewed for small businesses?

The U.S. Chamber of Commerce recommends business owners review their income statements monthly. Regularly monitoring expenses and revenue can reveal the impact of even small operational changes.

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Photo credit: iStock/LaylaBird

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

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