Five Common Ways To Fund A Small Business Beyond Personal Savings (2024)

FAQs

How do people fund small businesses? ›

Fund your business yourself with self-funding

Otherwise known as bootstrapping, self-funding lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401(k).

There are numerous options to get money to start a business without a loan. These include using personal finances, asking family and friends, crowdfunding, angel investors, venture capital, small business grants, startup pitch competitions and much more.

Personal or Family Savings. Personal or family savings is the most common source of business startup capital, according to Census Bureau data. The benefits of this method are clear: You're using existing equity to launch a business rather than taking on debt, so you won't owe interest or have to stress about repayment.

The most common sources of business startup capital include personal savings, family and friends, bank loans, angel investors, venture capital, crowdfunding, small business grants, business incubators and accelerators, self-funding, and revenue financing.

Some of the most common sources of small-business financing include banks, credit unions and online lenders. Grants are also available from sources like nonprofits, government agencies and private corporations. Investors or crowdfunding platforms can offer equity financing.

One of the most accessible ways to raise money for business is to use your personal assets. Tap into your savings or cash in a bond. Sell some valuables. Downsize into a smaller living space.

There are many ways to finance your new business. You could borrow from a certified lender, raise funds through family and friends, finance capital through investors—or even tap into your retirement accounts, although this isn't recommended in most cases.

Solutions to Selected Questions and Problems. 1.1 The two basic sources of funds for all businesses are debt and equity.

The main sources of funding are retained earnings, debt capital, and equity capital. Companies use retained earnings from business operations to expand or distribute dividends to their shareholders.

Government Funding

These are the most popular forms of small business financing, particularly the SBA's 7(a) and 504 small business loans. SBA loans are fixed-rate, fixed-term loans that must be repaid.

What is usually the first source of funding for a small business? ›

You. Contributing your own money to your business is the easiest way to finance it. You can tap into your savings, use a home-equity line of credit, or sell or borrow against a personal asset, such as stocks, bonds, mutual funds or real estate.

This could be equity finance – investment; debt finance – loans/overdrafts; grants. They may well be willing to help lend money to a new business starting up. This can be particularly good if they don't want any interest repaid on the loan that they make to you.

According to the SBA, 3 in 4 new businesses use personal savings; roughly 1 in 5 use a bank loan (19%). Other sources of startup income in both categories include a loan from family or friends, venture capital funding, or leveraging earnings from an existing business.

Some of the best places to look for funding are retained earnings, debt capital, and equity capital.

Applying for bank loans

At some point you may want to apply for either a personal loan or a federally backed Small Business Administration (SBA) loan, available through many banks and credit unions. They're the second biggest source of startup funding, according to Lendio.

1. Bank or credit union loan. Many traditional banks, credit unions, and online lenders offer small-business loans to help you start or expand your business. You may receive the funds as a lump sum or a revolving line of credit you can draw on as needed.

Service Startup: Self-funded, friends and family, business loans, government grants or loans. Direct-to-Consumer (DTC) Product Startup: Self-funded, friends and family, crowdfunding, accelerators, or seed funding (later in the journey).

Investors can earn through appreciation, interest or dividends. If you choose to finance a small business, you'll earn money through interest payments. If you choose to buy shares in a small business, you'll receive a portion of the company's earnings over time.