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How to Get Money to Start a Business – 15 Startup Financing Options

Every year, millions of Americans launch their own businesses. The Census Bureau reports over 4.3 million new business applications in 2020 alone.

Roughly 4 out of 5 of these businesses are sole proprietors, according to the Small Business Administration (SBA). In other words, they are self-employed individuals, rather than businesses with a team of employees. And only half of businesses survive their first five years.

Why do so many fail? Among the most common reasons entrepreneurs fail is simply running out of money. Which means if you want to start a successful business, you need plenty of capital.

Explore the following sources of startup capital as you launch and grow your own business.


Hands down, you’re better off funding your business yourself if you can manage it. You can avoid expensive interest payments, and don’t need to give up precious equity ownership in your business before it can get off the ground.

1. Personal Savings

You can of course fund your business with your own savings.

But don’t get stuck thinking in terms of your current savings rate. Just because it took you five years to save $25,000 doesn’t mean it will take you another five to reach $50,000.

Throw out your old budget. Instead, draw up a new ideal budget in Google Sheets or through Tiller, then start scrutinizing every spending category to start bridging the gap between your current budget and your ideal budget.

You’d be surprised how much faster you can save money when you get creative. For instance, how quickly could you save if you didn’t have a housing payment? Try these methods of house hacking.

If you dream of launching your own business, you may need to stop spending so much money elsewhere and start putting your money where your dream is.

2. Earn More Money

You have two options to widen the gap between your income and expenses: spending less and earning more.

Even as you cut your spending, come at your savings rate from the other direction as well. Look for ways to earn more, such as negotiating a raise or taking a higher-paying job.

Or starting a side hustle. To “extend the runway” in my own business, I picked up freelance writing. I enjoyed it so much that I still do it today, years after my business turned a profit.

Look for ways to start your business on the side of your full-time job. If you want to start your own web development company, for example, start picking up development projects on the side on gig platforms like Fiverr or Upwork.

This freelance work not only earns you extra money, but it helps you sharpen your skill set and start building a client base.

3. Sell Assets

Just because you don’t have six figures sitting around collecting dust in your savings account doesn’t mean you can’t self-fund your business.

Brainstorm items you could sell to raise money. For example, my wife and I sold our cars when we moved overseas. We now live without a car, and walk or bike to work (and everywhere else). We’re healthier than ever, even as we enter middle age. Plus we no longer have to make car payments or pay for auto insurance, gas, car repairs, parking, or any other car-related expense.

You can also sell financial assets of course, such as stocks, bonds, real estate, high-end electronics, or other valuables. While you may incur capital gains taxes, you also have plenty of ways to reduce or avoid them too.

4. Raid Your Retirement Account

Your retirement investments represent your future security. In a perfect world, you should let them compound untouched for decades.

But you can technically raid your retirement accounts for startup capital. The best account to raid is your Roth IRA because you can withdraw your original contributions tax- and penalty-free.

You can also withdraw money from your traditional IRA or employer-sponsored retirement accounts. But beware, the IRS will hit you with a 10% penalty plus all the back taxes you avoided when you first contributed the money.

Proceed with caution.

Borrow Startup Capital

If you need more money than you can possibly scrape together yourself, you have plenty of options to borrow it.

Just exercise caution that you don’t create untenably high interest bills. The more you borrow, the more time pressure you put on your business to generate revenue. And I can tell you firsthand that it takes far longer to grow a business than most new entrepreneurs realize.

5. Borrow from Your Retirement Account

Rather than withdrawing money from your retirement account, you can instead borrow against some employer-sponsored retirement accounts, such as 401(k)s and 403(b)s.

Contact your 401(k) plan administrator to ask about loans. You can typically borrow up to 50% of your balance, or up to $50,000 — whichever is lower.

Because plan administrators lend money secured against your retirement funds, the loans usually offer low interest rates. That makes these loans the most affordable option for small-business owners, short of borrowing from friends or family.

But beware, borrowing from your retirement plan could have consequences, especially if you can’t pay it back on time.

6. Approach Friends and Family

Not everyone has a rich uncle, but entrepreneurs who do can often borrow money for no or low interest and no points or fees.

Despite the personal relationship, however, don’t just approach friends and family with your hand out. Prepare your business plan, financials, and all other documentation that a bank would ask for when underwriting your loan.

Give your would-be sponsor the respect of a formal, prepared presentation. It demonstrates that you’re organized and prepared, that you’re taking both the business and their money seriously, and that you have a shot at success.

Don’t just ask for money, either. Invite their feedback about your business plan, their advice, and their own experiences in the business world. Again, it shows respect not just for their money, but for them as people with wisdom and experience of their own.

Finally, never assume that even close friends or family will lend you money. Don’t take their financial support for granted simply because you have a relationship with them. There are plenty of people in this world I like or even love, but whom I’d never lend money. Some people even have a firm policy of not lending money to friends and family, period.

7. Draw on Credit Cards

Credit cards offer several advantages and one giant disadvantage: exorbitant interest rates. Once you slip into a cycle of unpaid credit card balances, it’s often hard to escape.

Still, credit cards offer immense flexibility. You can draw as much or as little as you like, up to your credit limit. Then you can pay it back on your own schedule.

No bank applications for business loans, no lengthy waiting period while they underwrite your loan. You can access the money immediately.

While credit cards do charge a cash advance fee, you can avoid this for all the purchases you make with your cards. For expenses that don’t accept credit cards, you can still pay with your card using services like Plastiq.

In the beginning, aim to use low-APR credit cards to minimize your interest. As you start generating revenue and can pay your balances in full each month, switch to using rewards credit cards like cash-back cards (Chase Ink Business Unlimited®) or travel rewards cards (The Business Platinum Card® from American Express).

I know entrepreneurs who travel the world for free several times per year solely with rewards from business expenses they put on their cards, which they pay off in full each month with business revenue.

8. Tap Home Equity

If you own a home with equity in it, you have several ways to tap into that equity.

One flexible option involves opening a home equity line of credit or HELOC. These rotating credit lines work similarly to a credit card but are secured with a lien against your home.

That comes with several pros and cons, including lower interest rates but upfront fees and costs in a traditional real estate settlement. And the not-so-minor detail that if you default, you lose your home.

Alternatively, you can borrow a home equity loan — usually a second mortgage. Or you can refinance your existing mortgage to pull out cash. Again, these options come with an expensive real estate settlement, including title fees and lender fees.

When you add up all the upfront costs and interest, pulling equity from your home tends not to be a cost-effective way to finance your business. But it’s an option on the table nonetheless. Check out if you want to explore HELOC pricing and terms.

9. Personal Loans

Personal loans may charge higher interest rates than HELOCs or home equity loans, but they don’t require expensive real estate settlements. That can make the total borrowing cost for the loan lower, despite the higher interest rate.

As unsecured loans, lenders tend to cap personal loans at lower maximum loan amounts than some other loan types. Some lenders cap personal loans as low as $10,000, others go as high as $100,000, although personal loans that high are uncommon.

If you need a relatively small amount of startup capital, personal loans may offer a viable option.

10. Peer-to-Peer Loans

Peer-to-peer (P2P) loans involve borrowing money from individual investors through online P2P lending platforms, rather than going through a traditional bank.

It works like this. You post your loan details on a P2P platform — such as Lending Club or Prosper — stating the amount desired and reason for the loan. Potential investors review the request and agree to fund a portion of your loan.

Once enough people have contributed to fund your loan in full, you receive the money. You then make fixed monthly payments through the P2P platform, which in turn repays the investors based on the amount each one lent.

This relatively new type of lending offers some advantages over traditional bank loans. Borrowers can sometimes score lower interest rates, fewer fees, and greater flexibility.

But the basics of lending still apply. Borrowers must fill out an application and provide financial information that will be assessed by the P2P platform.

Your credit score still matters, and affects both your interest rate and loan amount. These lending platforms report your payments to the credit bureaus as well, so if you default, it does hurt your credit.

11. Small Business Administration (SBA) Loans

Created by Congress in 1953, the SBA doesn’t lend directly to small businesses. Instead, the SBA offers a variety of guarantee programs for loans made by qualifying banks, credit unions, and nonprofit lenders.

Ask around among banks and credit unions about SBA loan programs, including a few of the following more popular programs.

7(a) Loan Program

A common means of funding small businesses, entrepreneurs can use these loans to launch a new business or expand an existing business. The program allows small-business loans up to $5 million.

All owners a 20% stake in the venture or greater must personally guarantee the loan.

Furthermore, according to the outline of the use of 7(a) loan proceeds, 7(a) loans cannot be used to repay delinquent taxes, finance a change in business ownership, “refinance existing debt where the lender is in a position to sustain a loss and SBA would take over that loss through refinancing,” or repay equity investments in the business.

Businesses that qualify for a 7(a) loan must comply with SBA standards. If one of the partners in the business — with a 20% or greater equity stake — is “incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral depravity,” the SBA won’t back the loan.

Not surprisingly, the SBA also does not back loans to businesses that have previously reneged on any other government loan.

Other restrictions also apply. Businesses that lend money, are based outside the U.S., or generate more than one-third of revenue from gambling don’t qualify.

The same goes for businesses that are “engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs,” and companies “engaged in pyramid sale distribution plans, where a participant’s primary incentive is based on the sales made by an ever-increasing number of participants.”

There are also specialized loan packages offered under the 7(a) umbrella, including the SBA Express Program, which offers a streamlined approval process for loans of up to $350,000.

Interest rates on 7(a) loans depend on the lender, the size of the loan, and the borrower’s credit history. However, the SBA sets caps on the maximum spread a lender can add to the prime rate.

There are no fees on 7(a) loans less than $150,000. For loans greater than $150,000 that mature in one year or less, the SBA charges a fee of 0.25% of the portion of the loan it guarantees.

They charge 3% on the portion guaranteed by the SBA for loans longer than one year between $150,000 and $700,000.

That rises to 3.5% for similar loans over $700,000. The lender pays these fees, but passes them along in the borrower’s closing costs.

Although SBA-backed 7(a) loans are a popular vehicle for small businesses, lenders are much more likely to offer them to existing businesses that have several years of financial paperwork to demonstrate their viability.


Offered through specified nonprofit community-based intermediary lending organizations, the SBA Microloan Program provides loans of up to $50,000 to fund startup and expansion costs for small businesses.

Entrepreneurs can use them to finance new equipment, supplies, or inventory, or as working capital for the business. However, borrowers can’t use it to repay existing debt.

SBA microloans must be repaid within six years.

Intermediary lenders typically require personal guarantees from the entrepreneur and some form of collateral. Some borrowers must also take business-training courses in order to qualify for the microloan.

Inquire about microloan lenders in your area by contacting SBA District Offices.

Microloans offer a source of funding for many entrepreneurs with weak credit scores or few assets, who would otherwise not qualify for a traditional bank loan or SBA 7(a) loan. Many microloan lenders are community organizations that offer specialized programs for specific demographic groups or industries.

12. Conventional Small-Business Loans

Banks also issue small-business loans not guaranteed by the SBA.

These loans may be secured or unsecured, but they don’t have to rigidly conform to the SBA’s loan program. This leaves the bank more autonomy to set different rules and underwriting standards, and sometimes means more flexibility or an easier approval process.

Unfortunately, that flexibility comes at a cost. Expect to pay higher interest rates for conventional business loans. Further, these loans often come with shorter terms and lower loan caps.

Why? Because the bank assumes all the risk, rather than the government taking on the bulk of it. If you default, the bank has to eat the loss.

Talk to your bank or credit union about all their small-business loan options — then talk to several more banks and small-business lenders. If you want a business loan, do your homework to find the best possible fit for you and your business.

Relinquish Equity

Some entrepreneurs offer equity in their nascent company to attract funding. Many consider this a last resort because they give up not only future profits but often control over their company.

Before even considering offering equity in your company, make sure you understand the options and the players involved.

13. Incubators and Accelerators

Incubators work with new companies, particularly innovative ones with a decent chance at disrupting stale industries. They help take the founder from a promising business idea to earning revenue.

To do that, incubators generally provide access to mentors, coworking space, a network of relevant connections, and support such as legal services or help with intellectual property. And, of course, money.

Many incubators are backed by venture capital firms (more on them momentarily), looking for the next unicorn startup. For a good example of an incubator, check out Idealab. See the National Business Incubator Association more ideas.

Accelerators work with existing companies that are small but operational. Entrepreneurs spend several weeks or months working closely with the accelerator’s team of mentors to help them refine their business plan, avoid common pitfalls, and grow their revenue quickly.

Often accelerators provide seed money in exchange for an equity stake in the company. Famous accelerators include Y Combinator, the Brandery, and Techstars.

To enroll in an incubator or accelerator program, entrepreneurs must complete a lengthy application process. Requirements differ, but the entrepreneur must demonstrate a strong likelihood of success because competition is often fierce.

14. Venture Capital

Venture capital (VC) firms make direct investments in fledgling companies in exchange for equity stakes in the business.

Since most VC firms are partnerships investing firm money, they tend to be highly selective and usually invest only in businesses that are already established and have shown the ability to generate profits.

These firms invest in a business with the hope of cashing out their equity stake if the business eventually holds an initial public offering (IPO) or sells out to a larger existing business.

Often VC firms also demand some degree of managerial control over the business as well. Entrepreneur beware.

In “The Small Business Bible,” USA Today business columnist Steven D. Strauss notes that competition for VC funding is intense. Individual VC firms might receive more than 1,000 proposals per year and are mainly interested in businesses that require an investment of at least $250,000. They generally look for startups that show potential for explosive growth.

15. Angel Investors

Although venture capitalists operate as businesses, some well-off individuals also like to invest in startup ventures.

Like their more corporate VC cousins, these “angel investors” generally take an equity stake in the new business. Often these are people who have found success in a particular industry and are looking for new opportunities within that same industry.

Beyond money to get your business off the ground, some angel investors also provide guidance based on their own experience. They can also leverage their existing contacts within an industry to open doors for your business.

So how do you find these angels? Many angel investors prefer to keep a low profile and can only be identified by asking other business owners or financial advisors. Other angels have joined networks, making it easier for startups to locate them.

Try these organizations that can put your business in contact with angel investors:

In his book “Fail Fast or Win Big,” author Bernhard Schroeder notes that “angel investors typically only do one to three deals per year and average in the $25,000 to $100,000 range.” He says that these angels may meet with between 15 and 20 potential investment candidates per month.

So the odds of grabbing an angel’s attention aren’t especially high, but they’re still better than the chances of getting a venture capital firm to invest in your startup business.

So, if you want to go the angel investor route, practice your pitch until you’ve perfected it.

As quickly as possible, you need to make clear why your service or product will be a hit with consumers, why your business will stand out in the market, why you are the right person to run the business, and how much of a return on investment the angel can expect.

Known as an elevator pitch, it should take no longer than an elevator ride: 60 seconds or less.


A newer option, crowdfunding helps entrepreneurs fund their business with small contributions from many individuals. Entrepreneurs who seek crowdfunding can raise money through debt, offering equity, offering future products early or at a discount, or none of the above.

Prospective entrepreneurs who seek crowdfunding need to understand the rules of the game. Some crowdfunding platforms hold funds collected until contributions surpass a specified target. If the goal isn’t met, the funds may be returned to the donors. The platforms also take a cut of the money raised to fund their own operations.

Know that many crowdfunding campaigns fail to meet their goals. In order to attract the attention — and cash — of individual investors, you need a good story to accompany the pitch.

Also, successful crowdfunding campaigns often promise donors something in exchange for their money, such as a sample product to generate enthusiasm or early access to products or services.

Emphasize your own personal commitment to the startup in your pitch, stressing the time, effort, and cash you have invested yourself. Adding a video appeal often helps as well.

Popular crowdfunding platforms include:

Final Word

Unless you’re already a millionaire, gathering startup capital takes planning and effort. You must weigh the benefits and downsides of each funding option to find the right fit for you and your new business.

Don’t be afraid to mix and match multiple funding sources. It may take a combination of your existing savings, side hustle income, credit cards, and loans to launch your business startup and turn a profit.

I didn’t believe all the people who told me that it would take twice as much money and three times as much time to reach profitability as the typical entrepreneur forecasts. If anything, those estimates were low.

As you launch your business, have contingency plans in place for drawing more funds than you need — because you’ll almost certainly need them.

G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.