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20 Best Ways To Finance A Business Start-Up

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20 Best Ways To Finance A Business Start-Up - Merchant Maverick

When launching a business, the essential components of your success are the quality of your ideas and your willingness to put in the work required to see those ideas come to life. In the milk of capitalist meritocracy, the cream rises to the top. With gumption, know-how, and a little steely-eyed grit, there’s nothing stopping you from turning all that money currently languishing in your trust fund into a thriving business enterprise. Go ahead, make your mark on an opportunity-laden world!

Wait, what’s that you say? You don’t have a fat trust fund to draw from? In that case, looks like you’ll have to raise some capital. According to the Small Business Administration, the average cost of launching a start-up in 2009 was estimated (by the Kauffmann Foundation) to be $30,000. Obviously, different kinds of businesses have different funding requirements, but in the years since 2009, start-up costs certainly haven’t gone down.

The prospect of going, hat in hand, to beg for money from the holders of capital isn’t one that appeals to most entrepreneurs. It probably wasn’t the aspect of building a business that occupied your fever dreams growing up. Nonetheless, for those of us without inherited wealth, borrowing money to start a business is a necessity.

Let’s explore the ways you can get your mitts on some start-up capital for your new business venture.

Personal Assets

1. Your Own Assets

Self-funding may not be realistic for many entrepreneurs. Yet the fact remains that (according to the nonprofit association SCORE) 57 percent of start-up business owners use their personal savings for start-up capital. It may not be the most appealing prospect — it’s always more fun to spend someone else’s money — but sometimes, entrepreneurship entails sacrifice.

You might not be flush with cash, but you can always try doing things to change that. You could sell your car and just use Lyft, or the bus, to get around. Sell your house and rent an apartment above a restaurant. Or keep the house and get a home equity loan or line of credit. Just be sure to make the payments, or else you’ll be wishing you got that apartment when you had the chance.

You can even borrow money from your 401(k) or your IRA savings account. These are obviously not risk-free options, and should not be your first resort. But if you were looking for a life of minimized risk, you’d have chosen a more staid line of work. So be careful, but know that these options are available to you.  In fact, your business might be seen as a more worthwhile investment if investors see that you have a personal stake in its success.

If you’re thinking about tapping your retirement accounts, you may want to look into Rollovers as Business Startups (ROBS). For a fee, a ROBS funder will allow you to tap your retirement funds tax-free and use them to finance a new business or acquire an existing one. Keep in mind, this is still a risky practice that can jeopardize your retirement savings, and the fees can be significant.

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2. Friends and Family

Another less-than-ideal funding solution involves hitting up your friends and family for money. It’s certainly a tempting route to go. Banks and investors will likely demand a more thorough accounting of your business structure and creditworthiness than will your Nana. She’s probably not going to charge you the same level of interest, either.

However, it’s one thing to imperil your own finances with the inherently risky activity of starting a business. It’s quite another to put your close personal relationships in jeopardy. Consider the risk to which you’re subjecting your loved ones. Also consider the fact that having your family and friends’ money involved may drive you to stick with a losing proposition longer than is rational, should your business start to tank (as so many do).

If you do decide to seek business funding from friends and family, do yourself a favor: go through all the proper legal channels and have the paperwork professionally prepared. You should also make sure to request a loan, not equity investment. Ask for the latter, and your friends/family will have the legal right to be involved in major decisions involving your business. Do you really want Uncle Earl playing a role in running your company? He still uses Internet Explorer, for heaven’s sake.

3. Personal Loans

When you’re launching a start-up, business loans can be quite hard to obtain, mostly due to your lack of existing business revenue. It’s a classic “chicken and egg” problem. This is where personal loans can become a solution. Whereas getting a business loan is dependent on characteristics like the health and creditworthiness of your business, getting a personal loan is entirely dependent on your characteristics. Expect lenders to closely scrutinize your credit score (640 is typically the bare minimum), source of income, debt-to-income ratio, and proposed use of the loan.

Personal loans generally top out at $35K, though a few lenders cap it at $50K or higher. This is but a fraction of the amount you can borrow with a business loan, which can be $1M or more. Simply put, start-ups are inherently risky ventures, so the amount of capital lenders are willing to lend you is going to be strictly limited.

If you think a personal loan might be just the ticket for your business start-up, check out our guide to obtaining personal loans for business.

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Business Financing

business loan vs personal loan

4. Credit Cards

Credit cards can always help you out of a jam in your personal life. The same applies to financing your start-up.

Small business credit cards can have limits as high as $50,000. Considering that this is funding you can use without having your business plans scrutinized by some grand poobah, credit cards may be one of the most convenient means of financing a budding business. Of course, with this convenience comes high interest rates. You don’t want to let your credit card debt linger with the interest piling up, so plan to pay it back as soon as possible, within the no-interest grace period if possible.

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5. Grants

Free money: what better way could there be to fund your start-up? Unfortunately, obtaining a grant to fund your young business isn’t easy. That’s why you don’t hear about it happening too often. However, grant programs do, in fact, exist. There are federal grant programs, state and local government grant programs, and some private grant organizations as well.

You can find grant programs tailored to specific types of businesses, as well as certain segments of the population. There are small business grant programs for veterans, women, single mothers, and other groups. Be prepared to write an extensive and detailed proposal if you want any hope of landing a grant, however. Competition for grants is tight, and only the most compelling pleas are heard.

Grant programs can offer amounts as small as a few hundred dollars to recipients, so don’t expect to ride a wave of free money to business success. However, if you find a program that you match up well with and have a particularly poignant story to tell (and the time to tell it), you have nothing to lose by giving it a shot.

6. Bank Loans

Entrepreneurs trying to launch their first business venture are more likely to secure just about any of the above types of loans than a bank loan. Banks tend to want to see a history of profit before they’ll let you sniff their money — an obvious problem for a new start-up.

Nonetheless, if you have a significant amount of collateral (and yes, that’s a big if) and excellent credit, don’t count out bank loans as a possible source of capital. A commercial loan from a bank can resemble a mortgage: there’s a fixed interest rate, fixed monthly/quarterly payments and a maturity date.

Equity Financing

7. Angel Investors

Angel investors are wealthy business people who finance startups that have the potential to make them even wealthier. Angel investors don’t offer loans; instead, they offer equity investments, which buy them a share of the ownership of your company. As it turns out, “angel investors” aren’t motivated by angelic altruism, but by the same profit motives that drive you and me! (If you’re familiar with any of the insufferable high rollers on the show Shark Tank, you know what I’m talking about.)

According to, angel investments often amount to around $600,000, so we’re not talking chump change here. It’s a very tempting funding avenue to pursue if you’ve got more potential than cash on hand. But beware — you’ll also be giving up between 10 and 50 percent of your business.

There’s also the chance that your angel investor(s) might take exception to your management abilities and engineer a palace coup to depose your entrepreneurial butt right out of your own company. We’re talking Wolf of Wall Street stuff here. Experience this, and you probably won’t be thinking of them as “angels” anymore!

Nonetheless, if you think you can make it work, angel investors are quite a tempting source of capital, considering you won’t have to make payments with interest on the investment.

The Angel Capital Association (ACA) has a directory of angel groups and platforms. It’s a good place to begin your quest for angel investments.


go fund me for business start up

Crowdfunding takes the traditional approach to raising start-up capital and turns it on its head. Instead of bringing your sales pitch to investors and institutions hoping to be heard, you get a platform on which to lay out your plans and your needs for your budding business. Utilizing the advantages of the internet and giving investors the chance to come to you is a much more efficient means of pitching woo to your potential funders.

Different crowdfunding websites have somewhat different ways of operating. Let’s go through some of the more popular options.

8. Kickstarter

By far the most popular crowdfunding platform in existence, Kickstarter has become synonymous with crowdfunding. On their website, Kickstarter boasts:

Since our launch, on April 28, 2009, 13 million people have backed a project, $2.9 billion has been pledged, and 122,080 projects have been successfully funded.

Kickstarter (see our review) is what’s known as a rewards-based fundraising platform. Rather than invest in the pursuit of financial or equity return, investors typically get a “reward” for their generosity in the form of getting to use the end product or service in advance of everyone else.

Kickstarter is a fine option for the entrepreneur with a compelling pitch to make, but keep in mind that Kickstarter releases the funds donated to your business only after your campaign reaches its funding goal. Only about 36% of Kickstarter campaigns reach their funding goal. The rest fall short, in which case the campaigner gets nothing.



9. Indiegogo

Indiegogo (see our review) started as a fundraising platform for independent films but has since expanded to become a general purpose crowdfunder, offering opportunities in even more business categories than does Kickstarter.

Though they don’t get the same degree of media attention Kickstarter gets, Indiegogo actually has more live campaigns going at any one time than does Kickstarter. That may be because, unlike their better-known competitors, Indiegogo crowdfunding campaigns don’t necessarily have to meet their fundraising goal to receive their funds. All-or-nothing funding campaigns are offered by Indiegogo, though, as many backers may find that a more attractive proposition.

One important note: unlike Kickstarter donations, Indiegogo investments are not refundable.



10. GoFundMe

GoFundMe (see our review) is a crowdfunding platform most often used for personal causes and unfortunate life events, though you could certainly attempt to raise start-up funds through the site. It’s not linked to an existing community of investors, though, so donations are most likely to come from those in your own personal network, as well as those to whom you can get the word out. To this end, GoFundMe is optimized for social sharing.

With GoFundMe, there is no all-or-nothing funding requirement, though you will have to pay the same fees regardless of whether your campaign raises $2000 or $20.

If your start-up is related to some kind of personal or social cause, GoFundMe is a crowdfunding avenue worth pursuing. Just don’t expect a tremendous windfall.



11. Funding Contests

Funding contests are a very non-traditional means of raising money for a business start-up, but then again, tradition is overrated. Programs like the Amazon Web Services Start-Up Challenge and the MIT $100K Entrepreneurship Competition offers start-ups the chance to compete for thousands of dollars in funding every year.

These contests receive an overwhelming number of applicants, as you can imagine. Make sure to present your pitch in a unique and compelling way. Your ideas need to stand out in a sea of thirsty funding seekers.

12. Peer-to-Peer Lending

Peer-to-Peer Lending, sometimes known as social lending or crowdlending, takes the crowdfunding model of Kickstarter and combines it with more traditional lending practices. P2P services are essentially matchmaking services, only instead of pairing up lonely singles desperate for some semblance of human connection, P2P companies match lenders with borrowers.

P2P loans have two primary advantages over traditional loans. The first is that the application process is simpler and more convenient. You don’t have to meet with some stuffed suit or open your business premises for inspection. The entire process can be done at home, in your bedclothes (like most of the truly important things in life). The second advantage is that the process for getting approved and receiving funds is much faster than with traditional lending.

The downside is that P2P lenders tend to be particularly risk-averse when it comes to lending to those with iffy credit.

Check out our guide to peer-to-peer lending.


Microloans exist for the benefit of borrowers who fall short of the collateral and cash flow requirements necessary to acquire traditional bank loans. As Fundera states,

Microloans are typically defined as very small, short-term loans with a low-interest rate, extended to self-employed individuals, new startups with very low capital requirements, or small businesses with only a few employees.

Microloans can be facilitated both by the federal government and private entities.

13. SBA Microloans

As part of the SBA Small Business Loan Advantage program, SBA lenders are encouraged to make smaller business loans with lower interest rates (between 6 and 8 percent annually) to qualified businesses with good credit. Childcare-related nonprofits are particularly likely to be eligible for such loans. According to the SBA, the average such loan size is $13,000, and the maximum length of an SBA microloan is six years.

SBA microloans must be used for the following specified purposes:

  • Working capital
  • Inventory or supplies
  • Furniture or fixtures
  • Machinery or equipment

An SBA microloan cannot be used to pay off existing debts or to purchase real estate.

14. Kiva Microloans

Kiva (see our review) is a nonprofit microlender that offers loans with 0% interest and no collateral. Pretty sweet, huh? Kiva offers a maximum possible borrowing amount of $10K, so their loans are decidedly micro, Plus, the application process is long and arduous. On the other hand, 0% interest and no collateral!

Kiva is known for treating its users with a personal touch, which is decidedly not the norm in this field. In an industry rife with predatory practices, Kiva strives to be a positive community force, and that’s something I can get behind. Read our full Kiva review here.

kiva logo



15. Accion Microloans

Accion (see our review) is another private nonprofit microlender. Unlike Kiva, their loans do come with interest (8% – 22%) and can involve collateral requirements. However, Accion loans can be as much as $50K.

Not only does Accion offer microloans, but they also provide financial education, holding workshops and events around the country geared towards getting emerging small businesses on their feet. They also enjoy a reputation for transparency and excellent customer service.

Check out our Accion review and get the full story.



SBA Loans (aside from microloans)

Microloans aren’t the only types of loans available to start-ups offered by the SBA.

16. 7(a) Loans

7(a) loan is a loan partially guaranteed by the SBA in which the lender agrees not to exceed certain limits on interest rates and other loan terms. The program is designed to help borrowers who would be unlikely to qualify for a commercial loan from a bank.

To qualify for an SBA 7(a) loan, you must demonstrate that the SBA wasn’t the first place you went looking for money. Perhaps the biggest buzzkill here is that your business must also have already generated over a million dollars in income. Clearly, this isn’t a funding route to pursue before you actually launch your start-up. But for young businesses with demonstrable potential, the 7(a) program may be worth considering.

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17. CDC/504 Loans

Another SBA loan program, CDC/504 loans are tools with which the government helps certain businesses pursuant to specific public policy goals, such as energy efficiency or the promotion of minority-owned businesses.

According to the SBA, CDC/504 loans may be used for the following purposes:

  • The purchase of land, including existing buildings
  • The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping
  • The construction of new facilities or modernizing, renovating or converting existing facilities
  • The purchase of long-term machinery and equipment

Clearly, these aren’t the things most start-ups are looking to do, but if your new venture is involved with any of the above, and your business purpose is seen by the SBA as furthering their public policies, you may just want to investigate this program.

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18. Trade Credit

Trade credit is the credit extended to you by suppliers who let you buy now and pay later. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, you’re using trade credit.

Since trade credit is trust-based, it’s not easy for a start-up to obtain. However, if you really have your stuff together, you can pitch this arrangement to your suppliers just as you would if you were applying for a bank loan. Present a detailed business plan and offer collateral.

For new businesses, trade credit is a definite long-shot, which is why it’s all the way down at number 18. Still, keep it in mind as a possibility.

19. Presales

This is another path to funding that’s difficult if you’re a start-up without an established reputation, but if you have the right kind of marketing skills, you just might be able to pull it off.

Let’s say you’re in the process of creating a simple yet addictive video game. You show off a demo of the game on your popular YouTube channel and people go nuts for it. Even the YouTube comment trolls are impressed. If people like you enough, you might convince enough of them to pre-pay for the right to download the finished product on launch day. This way, there’s no middle-man involved, thus giving you direct access to the capital you need.

It’s so crazy that it just might work.

20. PayPal Working Capital

You might not realize that PayPal offers loans, but yes, in fact, they do. PayPal Working Capital (see our review) offers short-term business loans based on an existing business’s PayPal earnings–in short, it’s a funding option that requires a bit of business history. It’s not for the brand-new start-up with no earnings, but for more established businesses, PayPal loans can be an attractive option. They don’t even require a minimum credit score.

To apply, you just need to fill out an application available through your PayPal account. You won’t need to provide any other information, as PayPal is already your credit card processor in this scenario. They’re well aware of your financial situation!

If you’re intrigued, read our PayPal Working Capital review.



Final Thoughts

The quest for start-up financing isn’t a game for the meek. It’s a full-contact sport, and you’ve got to be willing to get out there and fight for the merits of your ideas and the structural soundness of your business plan. You’ve also got to expect rejection when seeking business capital. That’s why it helps to be aware of as many paths to capital as possible. Given the plethora of funding opportunities out there, the odds are decent that you’ll find at least one path that’s navigable for you and your start-up–so long as you’ve done your entrepreneurial homework and applied a fresh coat of optimism to your face, that is.

Of course, you could have avoided all this if you had just chosen to be born with a trust fund, but we’ll let that slide.

Chris Motola

Chris Motola

Finance Writer at Merchant Maverick
Chris Motola is a writer, programmer, game designer, and product of NY. These days he's mostly writing about financial products, but in a past life he wrote about health care and business. He's a graduate of the University of Central Florida.
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Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Quinn Echols

    This info is very helpful…I am seeking funding to purchase a radio station in Louisiana..The micro loan process seems to be a viable lane to consider as a minority owned broadcast facility..This is a existing business with minimal income what do you suggest as the next move in my journey to get funding?

      Jessica Dinsmore

      Hi Quinn,
      Did you have any particular lenders in mind? Are you thinking SBA loans? Or through another program? In general, I’d suggest getting your personal and business information ready, seeing what you qualify for, and making sure you meet all of the check-marks. Good luck!

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