Understanding how to get funding for a business is almost always one of the top things needed to start a business. That’s because, in most cases, you can’t start a business without funding.
So, what are your small business financing solutions? Grants? Investors? Those are great sources of capital for business, but they’re not the only small business finance options available. Many entrepreneurs use a mix of funding sources, including self-funding and crowdfunding. As you write your business plan, calculate how much money you need to launch—and then aim for more than that. Unexpected costs always arise when starting a new business.
Keep reading to learn about the different sources of funding in business, from investors to grants, and each of their pros and cons.
- There are many ways to get funding for a business: self-funding, crowdsourcing, investors, loans and grants.
- Each of the business financing options has its pros and cons, some of which can have long-term repercussions.
- Generally, funding sources that provide higher monetary amounts have more stringent requirements for recipients.
Types of business funding
If you’re wondering how to get funding to start a business, the answer is “there are a variety of ways.” Some funding sources are more well-known, while others are more accessible, especially if you’re a brand-new entrepreneur or don’t have a high credit score. As you explore different funding sources, take note of their qualifications. Certain funding sources, like investors and loans, have rigid requirements like specific credit scores and data-supported revenue projections. Other financial solutions for small businesses have “softer” requirements, like the ability to write a compelling pitch or a willingness to serve a specific community.
Source: Image via Depositphotos
Self-funding your business
Obviously, self-funding a new business is the easiest choice, but it isn’t plausible for most people.
It’s the best financing option for business owners who have a lot of capital, people who have a significant amount of money in their savings or those who have recently come into a lot of money, such as through inheritance or selling a home.
But that doesn’t mean it’s only for entrepreneurs with capital. There are a few ways you can fundraise for your business, like taking on a side hustle or offering your product or service at a small scale. For example, if you plan to launch an eyelash studio and need to raise funds for a security deposit and a new space, you can offer services in clients’ homes to build up your bank.
Source: Image via Depositphotos
Keep in mind that if you self-fund your business, you’re the one taking on all the risk. If the business fails and the money runs out, it’s gone. The flip side of this is that because you’re the one providing 100% of the money, you retain 100% control over it—there are no investors to pay back and no shareholders to keep happy.
As you consider self-funding, also known as bootstrapping, note all the different funding sources you can use. If you have a high credit limit, you can use credit cards to your advantage—just be sure to do so thoughtfully, as any credit card bills you rack up will need to be repaid with interest. Alternatively, if you have investments, you can liquidate these and use the funds as startup capital. You can also potentially borrow against assets, like taking out a home equity line of credit (HELOC) if you own a home.
Pros
- You have full control of the funds.
- There is nobody to pay back.
Cons
- There is no “safety net.”
- You’re limited to only the funds you can personally pull together.
Crowdsourcing funding
Crowdsourcing has a few similarities to self-funding. Namely, with crowdsourcing, you’re the one who raises the money, and ultimately, you have full control over it once it’s time to make business purchases. The difference between self-funding and crowdsourcing is that with self-funding, the money typically comes directly from your own personal accounts, like your savings or investment accounts. With crowdsourcing, other people give you money to get started—often in exchange for a freebie, early access to your product or some other kind of bonus.
Source: via Depositphotos
Platforms like Kickstarter and GoFundMe make it easy to crowdsource funding for a new business. Navigating these platforms can feel similar to navigating social media platforms, so you’ll need to have eye-catching images and copy ready if you want your business to stand out among the sea of others seeking funding.
Part of catching and keeping potential pledgees’ attention is offering them something in exchange for the funds, like early access to your service, a giveaway item or another promotional gift. This is where careful market research and a genuine understanding of your customer persona is key—you need to offer people something they’ll want so badly that they give your brand-new business their money.
Pros
- Crowdsourcing is inexpensive.
- Crowdsourcing can provide exposure and build brand recognition.
- No need to pay back investors.
Cons
- You’re dependent on pledges—if nobody pledges, you get no money.
- Funding amounts tend to be smaller than those raised through loans and investors.
Working with investors
Investors are people who provide funds in exchange for a stake in your business. They can be individuals, groups or companies. There are different kinds of investors, and the type of investor that’s best for you depends on a few factors, including:
- The kind of business you’re launching
- How much money you need
- What you’re willing to offer in return for investments
- Projected revenue levels
An angel investor is an individual (sometimes a group) who provides funding for a business at its earliest stages. Generally, angel investors are experienced entrepreneurs, which means if you’re seeking funds this way, you’ll need to really prove your business plan’s value to secure funding. This can be done through case studies, presentations and any data you’ve collected about your product, market and business viability. Angel investors may be friends, family or other members of your community. They may also be strangers you find through internet searches and networking.
Source: via Depositphotos
Venture capital firms are companies whose business model is investing in emerging and established businesses. Typically, they invest larger sums than angel investors and require higher returns on their investments. In many cases, a venture capital firm may specialize in investing in a specific type of business, like tech or healthcare startups. You can connect with venture capital firms through venture capital associations and private introductions.
With both types of investor, you need to clearly demonstrate why investing in your business is in their best interest. A venture capital firm may have an established application process for businesses seeking funding, while an angel investor may take a less structured approach—but in any case, you must provide clear data that shows how your business will grow, develop and earn money that you’ll pay back to your investors. After securing funding, you may also be required to provide regular profit/loss and growth reports. Your reporting schedule, the amount of money invested, the investors’ returns and the schedule on which they’ll receive them are all written into your investment contract, which may be drafted by a business attorney and properly notarized.
Sometimes, investors offer money in exchange for equity in the company. Essentially, this means they own part of the business, and in the event the business closes, they are entitled to a portion of its liquidated assets.
Pros
- You and the investors are protected by a contract.
- In some cases, investors can provide valuable business guidance and advice.
Cons
- You are contractually required to pay investors back regardless of the business’ performance.
- Investment is at the investors’ discretion.
Business loans
Business loans are a popular source of funding for new businesses. With a business loan, much like a mortgage or student loan, you borrow money and are then contractually required to pay it back, with interest, on a specific schedule.
Business loans can come from a variety of sources. These include:
- Individual lenders
- Banks
- Governmental entities
A loan’s terms are determined by a variety of factors, such as the borrower’s credit score and the type of lender they’re working with. For example, borrowing money from an individual lender, rather than a bank, may mean borrowing at a higher interest rate. These terms are written into the loan’s contract, and beyond the interest rate and payback schedule, they also include terms regarding early repayment and consequences for default.
If you’re facing difficulty qualifying for a loan on your own, you may be able to have a business partner, family member or friend co-sign a loan.
Taking out a business loan can be quite similar to working with investors. However, there is one key difference: With a business loan, the lender has no say in your business’s operation. Business loans are also more straightforward than investor agreements; you borrow the money and pay it back as required. The lender gets no equity in your company, and once the loan is paid off, the relationship is over.
Pros
- Business loan debt is often dischargeable through bankruptcy.
- The lender has no stake in your business.
Cons
- You must have good credit and may need existing assets to put up for collateral to qualify for a business loan.
- If you default on a business loan, your credit score is negatively affected, and your assets may be seized.
Private and governmental grants
A grant is like a loan, but with one key difference: You are not required to pay it back.
Grants are often used to stimulate business development. This is why they have stipulations about the kinds of businesses and business owners who qualify for them. Sometimes, the stipulation is that the business operates in a specific city or region, serving populations who previously couldn’t access the product or service the business offers. Grants also have stipulations about how the money is used and require recipients to provide documentation that the money is being used for approved purposes, such as hiring local residents or buying energy-efficient equipment.
Grants can come from private or governmental entities. The easiest way to find them is through online databases, like those linked in this Intuit blog post. Generally, the process for securing a governmental grant is the same as the process for a private one:
- Apply for the grant. This often involves providing detailed information about your business and plans regarding the funds.
- Undergo an evaluation by the granting agency.
- If approved, the grant money is disbursed on a predetermined schedule.
Grant recipients are required to document their use of the funds and share this information with the grant issuer. Failure to do so can cause the grant to be canceled.
Pros
- Money does not need to be paid back.
- There are lots of grant opportunities available.
Cons
- Recipients must maintain and submit detailed records of funds usage.
- Finding and applying for grants can be a long, tedious process.
- Grants are extremely competitive.
Real Talk: How entrepreneurs secured funding to start their businesses
Understanding the different small business finance options is one thing—actually securing funding is another challenge entirely. To bridge the gap between theory and real-world experience, we spoke with entrepreneurs about the strategies they used to get funding to start a business. From self-funding to investors, here’s what we learned from their journeys:
1. Starting small can lead to big success
Many business owners begin with minimal capital and scale gradually as revenue grows.
“My sister and I initially started our business by spending a couple hundred bucks on a Cricut, which is a cutting machine, and just using the printer we already had.”– Ashley, amarieacreates
Starting lean helps to avoid unnecessary debt and keep cash on hand. It also offers the flexibility to reinvest profits and shows future investors that the business can manage money wisely.
2. Financial discipline is key
Careful budgeting and resource allocation will help entrepreneurs stretch their initial funds.
“I worked a horse farm on the side, weeding the gardens, loading hay after work, after my main salary job, and set a really strict budget, like $25 a week for food.”– Michael, WildFlora
This level of discipline not only extends the small business owner’s runway but also shows potential backers that they can manage money under pressure—a key trait investors look for.
3. Leveraging savings and safety nets
Many business owners tap into personal savings or create a financial cushion before leaving traditional jobs.
“I took the opportunity to leave corporate America, tapped into the savings I had and set up a safety net.”– Karen, Kanda Chocolates
By building a safety net first, small business owners can reduce the need for risky, high-interest loans early on and position themselves as a lower-risk candidate when seeking outside funding later.
The experiences of these entrepreneurs show that business financing options vary widely, but the key is to start with what you have, budget carefully and explore multiple funding sources.
Check out Episode 6 of our Real Talk series, Getting started and funding your small business, to get first-hand insights into how to start a business:
Now you’re ready to request funding and write a business plan
Now that you know how to get funding for a business, you should pick two or three funding methods that work best for you. Once you’ve determined which kind of funding you’ll seek, the next step is to write a business plan. This is the baseline you’ll need when seeking any type of funding. Other documents to prepare include an engaging pitch deck and a well-rehearsed pitch you can present to investors.
Another thing to know when starting a business is that you need to be transparent with potential lenders and yourself about figures like your current debt level, business experience, projected income and current market. If you can’t provide detailed, accurate figures for these right now, do the necessary research and reach solid figures before you seek funding. You will be asked about these, especially if you’re seeking a bank loan, grant or investor involvement.
Check out our business start-up checklist for more step-by-step guidance.
Funding is the first step in starting a business
As a small business owner, getting enough funding can be the difference between launching now and having to put your dreams on hold for months or even years longer. Invest in your future by exploring all your funding options now to find the right opportunity for your business. You may find that the best way to fund and launch is through multiple streams, like partially self-funding and partially crowdsourcing. That’s totally okay! The important part is that you get enough money to launch successfully and start generating revenue.
As you explore funding options, don’t neglect other resources and steps to take early in your entrepreneurial journey. Check out this post on the five steps to starting a business with confidence.
FAQ about small business finance options
What are some common ways to get funding for a new business?
There are several ways to get funding for your new business:
- Savings: Use your own money that you’ve saved up.
- Loans: Borrow money from banks or online lenders that you will pay back with interest.
- Investors: Find people who want to invest in your business in exchange for a share of the equity.
- Grants: Apply for free money from the government or organizations that you don’t have to pay back.
- Crowdfunding: Raise small amounts of money from many people through online platforms.
How do I know which type of funding is right for my business?
To choose the right funding, consider these factors:
- Amount needed: How much money do you need? Some methods, like loans and investors, can provide large amounts.
- Repayment ability: Can you pay back a loan? If not, grants or investors might be better.
- Business stage: New businesses might start with savings or crowdfunding, while established ones might seek loans or investors.
- Control: Do you want to keep full control of your business? If so, avoid giving away equity to investors.
What are the easiest small business funding options to qualify for?
If you’re just starting out and don’t have savings, some of the easiest funding options to qualify for include:
- Crowdfunding: Platforms like Kickstarter or GoFundMe let you share your idea and raise small contributions from a large group of people. You don’t need great credit or collateral—just a strong pitch.
- Small grants: Some local governments, nonprofits and industry groups offer grants for new businesses, especially if you’re in a specific niche or underrepresented group. These don’t need to be repaid.
- Microloans: These are smaller loans (usually under $50,000) commonly offered by nonprofits, community lenders and the U.S. Small Business Administration. They often have more flexible requirements than traditional banks.
How can I find investors for my business?
Finding investors involves:
- Networking: Attend business events, join entrepreneur groups and connect with people who might be interested in investing.
- Pitching: Prepare a clear and convincing presentation of your business plan and how it will make money.
- Online platforms: Use websites that connect startups with potential investors.
What documents do I need to apply for small business funding?
To apply for small business funding, you’ll typically need a few key documents:
- A business plan
- Financial statements (like profit and loss or cash flow projections)
- Your credit report
- Legal documents such as your business license or registration
Some lenders may also ask for tax returns or bank statements.
It’s a good idea to check the exact list with the lender ahead of time—requirements can vary depending on the type of funding you’re applying for.
Are grants a good small business financing option?
Yes, grants can be a great option because they don’t need to be repaid. They’re competitive, but if you qualify, they offer free funding that can help you start or grow your business without taking on debt.
