Funding a business: 13 funding sources

Dustin Johnson
By Dustin Johnson

New businesses and established businesses seeking growth face two challenges.

Challenge number one is determining what levers they can pull to achieve maximum growth. More staff, marketing, or continued product development? After making a decision, there’s still work to do. Challenge number two is funding a new business.  Growth isn’t cheap.

There certainly isn’t a lack of business funding sources. However, narrow the list to funding options available to all types of businesses, and the list shrinks. Narrow it to funding options your business can qualify for. You guessed right; it gets even shorter. 

In this article, you’ll discover the following:

  • 13 funding sources for new and existing businesses.
  • What to look for in funding sources when funding a new business.
  • What each funding type lender looks for when businesses ask for funding.


I know this sounds like a cop-out. The first person you should look to for funding is yourself. Self-funding a new business means keeping 100% of the profits and company ownership. You can also avoid indebting your business. Lenders and investors like to see that you’re personally invested in the business.

Sometimes, your business needs more cash to get off the ground than you have. Even if you have enough money in your savings to start your business, are you comfortable risking it? To alleviate risk, entrepreneurs enjoy using OPM, or “Other People’s Money,” to fund their business ventures.

Love money

The next logical place to look is friends and family. We’re referring to people you love when we use “love money.” The terms of a loan are built off an existing relationship instead of a formulaic risk-reward analysis. You can look at loans from friends and family in two ways.

  1. As a first option due to comfort
  2. As a last option after exhausting all other funding sources

The potential main benefit of love money? The idea is that there aren’t any fixed payment terms. You also won’t jump through as many hoops to secure the funding (depending on the family). A potential thorn is the added pressure of taking money from a loved one.

Here’s what you need to do to make the deal comfortable for both parties:

  • Set clear expectations regarding repayment and timeframes for both sides.
  • Be clear with your financial backer about how much money you need and why.
  • Put the terms in writing and get legal help.
  • Make your financial backer aware of potential legal consequences.
  • Make them aware of the risk and potential worst-case scenarios. Avoid appealing to emotions and fantasy. Instead, rely on facts and data.

Credit cards

Businesses need revolving access to capital. Business credit cards provide just that. Business credit cards aren’t limited to large corporations. In fact, freelancers, startups, and sole proprietors can benefit from business credit cards. You get so much more than access to capital with business credit cards.

Benefits of business credit cards

  • You can maintain control of equity. This means less oversight and more money for you down the road.
  • You can reap cash back, points, and other valuable perks. You can use business points and cash back for personal or business purposes.
  • Many credit card companies offer low-interest or even 0% interest credit cards. They do this to attract business owners.

Cons of business credit cards

  • Startup business owners sometimes need access to higher credit limits. It’s typically harder to access higher credit limits when you’re starting out in business.
  • You can damage your business credit score if you're too aggressive. You'll incur interest penalties if you fail to pay off your statement balance.

Crowdfunding sites

Crowdfunding is when a “crowd” of people funds a business, project, or idea. Crowdfunding platforms help entrepreneurs share their businesses with the world. The internet has brought ideas out of garages and onto the big stage.

There are four types of crowdfunding campaigns

  • Equity: Your startup can exchange equity in return for investment. The SEC allows private companies to raise up to $5 million/per year in equity crowdfunding.
  • Debt: Does your startup have a few years of experience and lending history? You can seek crowdfunding investment in the form of a loan. Investors expect to receive payment plus interest over time. Startups may find securing debt crowdfunding easier than traditional banks and lenders.
  • Rewards: Investors receive a reward, such as a free product or experience, in exchange for funding. It’s a win-win for businesses. They get funding for their product and an opportunity to expand their customer base.
  • Donation: Do you have a strong local interest in your offer, or does your business serve  a charitable cause? You can seek donations on crowdfunding sites. Investors don’t get anything in return for their donations.

To run a successful crowdfunding campaign, pick the right crowdfunding platform and create a compelling offer.

Pros of crowdfunding

  • If your campaign takes off, you have a large pool of investors, likely customers, and brand spokespersons.
  • For the investor, crowdfunding is a low-risk venture that’s easy to invest in.

Cons of crowdfunding

  • For a relatively low cost, your competition can access your business plan and information on your business.
  • Crowdfunding sites may be too popular. It’s easy for stiff competition to drown out your offer.
  • Crowdfunding sites usually charge in the form of monthly fees or payment processing fees.

Bank loans

Lending requirements bar most businesses from bank loans. Banks aren't charities. They aim to make money on the interest you pay on top of the loan. They will judge your approval on whether they think you can repay the loan. Bank loans for new businesses, especially in volatile industries, come with stricter conditions. Your personal assets may be unprotected in the event of a commercial loan default.

Here are the more common types of business loans:

  • Term loan: A business term loan is a lump sum of capital you borrow from a lender. This loan is repaid on a fixed schedule, also known as a term. Term loans have a more straightforward application process and lower interest rates. However, term loans are difficult for startups to secure because banks like to see previous financials.
  • Line of credit: A line of credit is a borrowing option where you’re approved upfront for a set credit limit. You can draw on this credit limit whenever you want and only pay interest on the credit you use. That may sound like a credit card, but lines of credit don’t have a grace period, unlike credit cards, which do. This means you start incurring interest the day you use it.
  • Unsecured loan: Unsecured business loans don’t require collateral. Lenders typically ask borrowers to use real estate, vehicles, or investments as collateral. They usually come with higher interest rates and shorter terms. You can also still lose your assets if you default.
  • Commercial mortgage: A commercial mortgage is a loan to buy or refinance property or land for business purposes. Commercial mortgages are harder to find compared to residential mortgages. Lenders typically take them on a case-by-case basis.
  • Equipment lease: An equipment lease is a way to spread out the cost of an item over time. Many business owners choose this option. They factor in the high cost of owning equipment and its eventual obsolescence. Equipment leasing contracts typically run for three, seven, or ten years.

Securing a bank loan isn't easy. Follow these three tips to give yourself the best shot:

  • Understand what your bank needs during the application process. This can save time and increase their likelihood of saying yes. They'll want a business plan, financials, and personal, legal, and licensure documents.
  • Don’t jump at any business loan because they’re different. Choose the loan based on the interest rate, repayment terms, schedule, and the lender's reviews. You may want to avoid a situation where you carry multiple business loans at once. Choose wisely.
  • Keep your business credit and bank account balance in good standing. Lenders want to see a good financial history and a promising financial forecast.

Angel investors

An angel investor is an individual who provides financial support to start-up companies or small businesses. In exchange, they receive equity ownership or convertible debt. Angel investors are often wealthy individuals seeking to invest their funds in promising businesses.

They typically play an active role through mentorship, connections, and decision-making.

Benefits of using an angel investor

  • Willing To Take Risks: Early-stage businesses may struggle to secure traditional bank loans or venture capital funding. Angel investors are willing to take risks if they think it’s worth the reward.
  • Guidance: Angel investors often have valuable experience and knowledge in the industry or market segment the business operates in. They can provide guidance, strategic advice, and mentorship to entrepreneurs.
  • Networking: Angel investors usually have a wide network of contacts in various industries. These connections can uncover potential customers, partners, suppliers, and investors. They’re willing to go the extra mile because your profit is theirs.

Drawbacks of working with an angel investor

  • Equity Dilution: Accepting angel investment means giving away a percentage of ownership in the company. This equity dilution means you and other founders will own a smaller portion of the business.
  • Loss of Autonomy: Angel investors often want to be actively involved in the business. Sometimes, their ideas and visions may not always align with yours. This could lead to conflicts and compromises on the company's direction.
  • Pressure to Perform: Angel investors expect a return on their investment. This can pressure the business to achieve rapid growth and profitability. If you prefer the slow and steady approach, choose your angel wisely.

Venture capital

If your startup has significant growth potential, it could secure venture capital. Venture capital (VC) refers to a form of private equity financing firm. They provide funding to early-stage or high-growth potential startups and small businesses. These venture capital firms pool money from various investors. They'll tap into wealthy individuals, investors, and corporations to create a fund. The fund is then used to invest in promising businesses with the expectation of generating substantial returns on investment.

You may wonder. What’s the difference between angel investors and venture capital?

  1. Angel investors are usually individuals with their own money. VC firms are companies that pool and invest other people’s money.
  2. Angels usually invest in the early stages of a company's development. Venture capitalists typically come into the picture after the seed stage. They look for startups with some level of traction and growth potential.
  3. Angel investors may take a more hands-off approach with lenient terms. VC firms typically require board seats, regular reporting, and involvement in decision-making.

Theoretically, any business can secure venture capital. However, VC firms usually invest in companies structured as C corporations. If you’re not, they’ll advise you to restructure before investing.

Business incubators/accelerators

You could put business incubators in the same category as angel investors and venture capitalists. These three business funding sources are available to all types of businesses. That said, you may connect them with “modern” startups. A business incubator is a program that supports startups.

They offer a nurturing and supportive environment, notably increasing the likelihood of a startup's survival and success. Of course, a key way they do this is by providing funding.

Y combinator is a famous example of a business accelerator. They’ve helped companies like Airbnb, Instacart, and Reddit get off the ground. Their current equity deal is $500,000 for 7% of the startup. 


A grant is a financial award from a government agency, company, or foundation to support growth and development. Grants are an attractive funding option for entrepreneurs and small business owners. Unlike loans, they don’t need to be repaid. 

The catch is that grants are hard to come by. Grants are awarded for specific purposes such as R&D, job creation, or community development. They’re almost always initiatives or projects that align with the grant provider's objectives. The application window for grants is usually tight. As a result, the competition for grants is intense.

You can search for government grants on the U.S. government's official grant website. Don’t stop your search at the federal and state government levels. Grant opportunities exist at the private level too.

SBA loans 

Founded in 1953 by President Eisenhower, the SBA aims to aid, counsel, assist, and protect the interests of small businesses. One way the SBA helps is by financing small businesses through various loan programs. Each year, the SBA gives out billions of dollars in grants and loans from their own funding or by working with lenders.

Currently, there are five SBA-backed loans

  • Microloans: The SBA microloan program issues loans from $13,000 to $50,000. Intermediary lenders administer these loans. You need to contact an SBA-approved lender to inquire about requirements. Data shows traditional lenders have denied minority businesses. SBA funding programs include those meant to support underserved communities.
  • 7(a) Small Business Loans: 7(a) loans are the most common because they are more flexible. The maximum loan amount through the 7(a) loan is $5 million. In 2021, the SBA issued $36.5 billion in loans through the 7(a) program. The SBA typically takes 60-90 days to approve 7(a) loans.
  • SBA Community Advantage Loans: The Community Advantage Program assists businesses in underserved markets. The maximum loan size is $350,000. This program is great for startups that don’t meet the standard 7(a) loan requirements. 
  • SBA Express Loans: SBA Express Loans are a variation of 7(a) loans. They have a lower funding maximum of $500,000. However, these loans have quicker processing. A 7(a) loan application may take between 60-90 days. An approval decision is guaranteed within 36 hours for an SBA express loan. 
  • SBA CDC/504 Loans: CDC/504 loans offer funds of up to $5 million. CDC/504 loans have stricter usage rules than other government small-business loans. Their primary use is for fixed asset purchases. These might include financing construction, real estate projects, or the purchase of long-term equipment.


Government subsidies are government-provided financial assistance and support. The government provides them to specific industries and businesses. The aim is to promote certain activities, economic growth, and job creation or to achieve other policy objectives.

There’s a lot of political debate around subsidies given to large corporations. The term “corporate welfare” characterizes welfare for the well-off. Some government subsidies have indeed been associated with large corporations due to the scale of their operations and influence. Subsidies are also available to small businesses.

Home equity

Starting a business is a risky decision, especially if you don’t have a ton of funding. Don’t take this decision lightly, but refinancing your home to fund a business can offer advantages in accessing capital.

Benefits of using home equity

  • Lower Interest Rates: Refinancing your home when interest rates are low may result in a more favorable rate on the new mortgage. This can potentially lower your overall borrowing costs.
  • Control: Unlike borrowing from investors or taking on business partners, funding your business through home refinancing allows you to maintain complete control of your venture.

Risks of using home equity

  • Risk to Homeownership: By using your home as collateral, you are putting it at risk. If the business fails and you can't repay the mortgage, you could face foreclosure and lose your home.
  • Debt Burden: Taking on additional debt through refinancing means higher monthly mortgage payments and an increased financial burden on your household.
  • Market Fluctuations: Real estate markets can be unpredictable. If property values decline after refinancing, you may owe more on your mortgage than your home is worth.
  • Opportunity Cost: Using the equity in your home means you're tying up funds that could have been used for other purposes, such as emergencies, investments, or future needs.

Retained earnings

The whole idea of starting a business is to earn a profit. At first glance, mentioning this may seem redundant. It may be wise to bootstrap a business and then use retained earnings to grow.

When could this be applicable?

The last thing you want to do is take a loan, private investment, or open a line of credit for a business idea that doesn’t work. If you’re unsure about your idea, testing the waters before tying yourself down is best. When your business succeeds in the first few waves, guess what? It will look that much more attractive to investors and lenders.  

Fund your new business

Diversifying your access to capital can help your new business survive in the early days. When cash flow is tight, or you plan to grow quickly, turn over every stone to find funding. 

Dustin Johnson
By Dustin Johnson
Dustin Johnson is a Senior Tax Research Specialist at ComplYant. Prior to joining ComplYant, he spent over eleven years performing tax research at the world’s largest tax preparation company. Dustin holds a Bachelor of Business Administration and a Juris Doctor. Outside of work, Dustin enjoys biking and spending time with his family.

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