Small Business Funding: How to Get Capital for Your Business

Starting a business is no doubt a lot of work. One of the biggest issues that will come up is funding that small business. Capital is necessary to get your business off the ground, but where does it come from? There are several possible sources of small business funding out there today, categorized into two main groups:

1. Debt funding: Loans, lines of credit, etc. that you borrow and repay over 

time

2. Equity funding: Investor capital that is exchanged for an ownership interest

Free capital is also available in the form of small business grants, which do not have to be repaid. However, these are often more difficult to obtain and have a lot of steps involved in the approval process. Therefore, they might not be ideal for certain situations.

The options that are available for small business funding will also depend on your credit and personal financial situation. If you are starting a business, you don’t have any business credit to offer, so they have to look somewhere. 

Debt Funding Options

Debt funding, also often called financing, is available for anyone who starts a business and meets the requirements of the lending products in question. The Small Business Association has loans for new businesses. There are also business term loans available from a variety of lenders and banks that can be used to set up and furnish your business to get things off the ground.

The other options are business credit cards and lines of credit. These are similar, but they function differently and have their own pros and cons to consider. With a line of credit, for example, you can draw from the funds when you need money and then you’ll only pay interest on what you spend. The same is true of business credit cards, but they typically have much lower limits than lines of credit. 

Equity Funding

Those who want to avoid debt or who can’t get business loans may consider investors instead. Equity funding comes in several forms, and although they can be generalized as “investors,” they all have a unique role and purpose. Angel investors are those who invest in startups just for the sake of the growth potential.

Vested parties are those investors who give you money in exchange for a stake in your business. This kind of equity funding is more common than angel investing, but both can be found with the right research.

Another type of equity funding comes from venture capital firms. These are essentially entire firms of investors who are looking to help new businesses get off the ground so that they can then earn a return on their investment. And finally, we have one type of funding that’s exploded with the use of social media: crowdfunding.

Crowdfunding allows you to set up a campaign online and raise money through public donation requests. You can offer people rewards or exclusive access, or even just give them equity in the company for their donation. 

Free Funding and Self-Funding

As mentioned, there are several small business grants available for new businesses, as well as for those that have been around for some time. Business grants are typically sourced from three groups:

1. Federal and state governments

2. Nonprofit organizations and entities

3. Private corporations

Those who choose to self-fund their business may use personal savings, retirement accounts, and other funds they have on hand to provide capital for their business. Some people will choose a mixture of all of these methods to raise the capital necessary and diversify their funding.

As you can see, no matter what you need, small business funding is easier to find than you think.