Startup Funding: 12 Options for Startup Capital
Last updated Dec. 18, 2024
The moment you decide to start a business is an exciting one. But it’s tough to maintain that momentum and enthusiasm as you set out on your search to make your startup dreams come true. Funding your startup, in particular, may be a tricky though essential part of the process.
Startup funding for small businesses can be particularly elusive because most traditional business loans require two or more years in business. The good news, though, is that there are a dozen other options at your disposal to kickstart financing for your small business.
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Best Startup Funding Sources
The best sources of funding for startups include the following:
- Business loans: Debt financing that gives you access to capital without diluting ownership in your business.
- Business credit cards: Allow you to leverage your personal credit history to access business credit for funding your startup.
- Debt-free funding: Alternative sources of startup funding that may be worthwhile depending on your business’s unique situation.
Here are 12 options to consider in your search for startup funding.
1. Microloans
Best for: Small loan amounts, particularly if you’re a minority, veteran, or woman business owner.
Don’t be afraid to start small to fund your startup. Microloans can be as small as a few hundred dollars and generally up to $50,000. Because these loans tend to originate from nonprofits and government programs that focus their lending efforts on commonly underserved communities, the eligibility requirements for microloans are often flexible enough to include startups in the mix.
In particular, the U.S. Small Business Administration’s SBA microloan program is one of your strongest options for startup capital. Originally created to make startup business funding more accessible to women, minorities, and veterans, this program provides small business borrowers with up to $50,000 via community-based, nonprofit, intermediary lenders.
An SBA microloan typically carries interest rates between 8% and 13%, and term lengths up to seven years. Traditional funding with these desirable rates and terms is rarely, if ever, available to brand-new businesses outside of this SBA-subsidized program.
In addition, SBA microloan lenders are unique because the Small Business Administration intentionally chooses them to work face-to-face with the startup founders as mentors as well as lenders. (It’s one of the many advantages of SBA loans.) Within this role, microloan providers act not only as a source of funding for a small business startup, but also as counselors offering advice on business management, marketing, and finance for the ongoing success of borrowers.
With all of those desirable perks, however, comes a lot of competition. And that makes the application and approval processes for the SBA microloan program not only difficult but long.
2. Business Lines of Credit
Best for: Larger loan amounts and maximum loan use flexibility.
If you’re looking for a more flexible source of money for your startup, consider a business line of credit. Often described as a hybrid between a credit card and a traditional business loan, a line of credit is a pool of money established by the lender with a maximum credit limit. You can draw from the line of credit for nearly any business purpose and in any amount, up to the credit limit.
The biggest advantage to a business line of credit is that you only pay interest on the amount you’ve used at any given time. So, your credit limit may be $30,000, but if you only withdraw $10,000, then you only pay interest on that $10,000 that you’re actually using.
Beyond this flexibility, here are a few other key advantages of the business line of credit as a source of startup funding:
- Money can be withdrawn anytime and for any business purpose.
- It can be more accessible to business owners with less-than-perfect credit.
- It can help you begin building business credit history, which will open more and better funding opportunities to you in the future.
- It provides flexibility for fluctuations in business cash flow.
As a startup business owner, you’re likely to have better luck applying for a business line of credit through an online lender, which will often require a minimum of three months to one year in business, depending on the lender. Traditional business lenders such as banks and credit unions often expect at least a couple of years of business history to consider your application.
It’s worth inquiring with a bank at which you already have an account, however, as some banks do offer loan products specifically for startups, and they’re likely to be able to offer you more competitive rates and terms than online lenders.
3. Equipment Financing
Best for: Purchasing big-ticket equipment, machinery, or hardware for your startup.
If you need startup funding to purchase equipment, then consider equipment financing a top option for funding your venture. The equipment you purchase serves as collateral for the funding you use to purchase it, and once you’ve paid off the loan, you own your purchase.
Although many equipment lenders have minimum requirements for time in business, on the whole, these lenders tend to be more flexible with their qualification requirements than traditional lenders.
4. Invoice Financing
Best for: Business-to-business startups with outstanding customer invoices.
Invoice financing is another startup funding option you can often access with little-to-no time in business. Through invoice financing, you get a cash advance for a portion (typically 80% to 90%) of your business’s outstanding invoice value. Once the invoice is paid, you receive the remainder of the invoice total, minus the financing company’s fees.
Invoice financing companies typically focus more on the creditworthiness of your customers than on particular qualifications for your own business. And like equipment financing, the invoices themselves serve as the collateral on the advance, so you won’t typically need to put up any additional business collateral.
5. Business Credit Cards
Best for: Relatively quick access to funds (and perks) plus building your business credit.
Similar to a business line of credit, a business credit card offers you great flexibility in use of your funds and limits interest paid to only those funds you’ve spent. Additionally, applying for a business credit card is generally a straightforward and rather swift process.
As long as you have strong personal credit and the financial self-control to pay your full balance on time each month, a business credit card is a great option for funding your startup. It has the added benefit of helping you build your business credit score, which will help to expand your funding options at a later date.
6. Personal Loans for Business
Best for: Strong credit borrowers with the confidence to back their business venture using their own finances.
Taking out a personal loan for business purposes can have a few key advantages over a business loan: lower interest rates, easier qualification requirements and faster receipt of funds. Personal loans can also be used for nearly any purpose.
There is, of course, one major caveat with this option: When you take out a personal loan for your business, you are entering into a contract with the lender as an individual— not as your business. This means that if bad fortune strikes and your startup fails (just speaking purely statistics, here, 21.5% of small businesses closed in their first year of business, from March 2023 to 2024
7. Friends and Family
Best for: Entrepreneurs with a supportive network that believes in their vision and can afford to help fund it.
What if you don’t qualify for any of these startup business loans but you don’t want to rely solely on a business credit card for your startup business funding? You may want to consider going to friends and family to fund your startup.
This option comes with its own real set of risks, namely navigating relationships when mixing business and personal matters. If you go this route to fund your startup, you’ll want to be selective in those you choose to approach for funding. Involve friends and family who have a strong understanding of business and finance, and also give consideration to whether you have an open and easy relationship with the person versus a sparse or tense one.
Finally, even though this option is certainly less formal than applying for a loan through a bank or other professional entity, it still requires you to write a clear business plan and determine how much funding you truly need so you can make a strong case to your friends and family to invest in your vision.
If this option is appealing to you but you’re nervous about involving personal relationships in your startup funding process, then the next option on our list may be a good fit for you.
8. Crowdfunding
Best for: Social-savvy business owners with time and patience to dedicate to actively raising funds.
By taking advantage of crowdfunding platforms like Kickstarter and IndieGoGo, you may be able to fund your startup by asking a large number of individuals to make small investments. Each investment from a backer incrementally adds to your goal, so even the smallest contribution helps—you don’t need access to an accredited investor to fund your startup.
Setting up crowdfunding campaigns is also a great way to gain exposure for your young business and begin to build a customer base.
Fair warning, however: Crowdfunding does not normally generate large sums of startup capital, and maintaining a campaign can be time-consuming. Before you pursue this option, consider whether the opportunities for exposure through crowdfunding sites will be worthwhile even if the campaign doesn’t fully fund your business.
9. Venture Capital
Best for: Startups on a path for rapid growth.
Wouldn’t it be nice to begin your startup journey without taking on debt?
If you’re interested in funding a startup without taking on interest-bearing debt, then consider venture capital, which is a form of equity financing. This means that each investor in your startup holds a percentage ownership of the business. Venture capital (VC) is typically a strong option for high-growth businesses.
VC firms will evaluate your new business based on credentials like its pre-money valuation, revenues, and team, so be ready to speak to these points before you pitch to any early-stage venture capital firms.
10. Angel Investors
Best for: Business owners who don’t mind giving up partial ownership of their business.
Looking for angel investors is another excellent source for startup or early business funding. Angel investors are generally wealthy individuals who provide working capital in exchange for ownership equity in a business.
Angel investment is typically sought out during the early growth stages of a startup business.
11. Personal Savings
Best for: Entrepreneurs with rainy day funds of their own.
Have you considered how much of your own savings you’re willing to invest in your own business? If you are confident enough in your new venture to seek funding from strangers, step up and show that confidence by investing some of your own savings in your business.
After all, if you’re not willing to take a chance on your startup, why should anyone else—even those who habitually invest in startups? If you’re anticipating applying for an SBA loan at some point, then definitely consider this route. The SBA likes to see that a business owner has invested personally in their business.
12. Grants for Small Businesses
Best for: Highly motivated entrepreneurs who are anxious about taking on debt and not deterred by time-consuming applications.
Small business grants require no repayment, which is why they’re often considered the closest thing to “free money” that you could ever obtain for your business. Although hard to find, they’re usually worth seeking out as a source of startup funding.
Grants for small business tend to be industry-specific, so you’ll need to carefully research your business circumstances and identify your niche so that you can tailor your grant application to align with the grant sponsor’s goals. But there’s likely something that applies directly to you—from small business grants for women to small business grants for minority business owners, and more.
Continue Your Startup Funding Journey
Curious to see what kind of startup funding you qualify for? Fill out one simple application with Fundera, and we’ll show you your options. This won’t impact your credit score, and there’s no obligation to get your funding through one of our partners.
Let’s get started on funding your small business dream!
How much do you need?
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