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How To Get Money To Start a Business (2023) | Online Money Moves

It takes more than a great idea to launch a business. No matter what type of company you’re starting—whether it’s a small freelance venture or the next big fintech company—you’ll need funding to make your dream a reality. There are plenty of options when it comes to funding a new business. Here’s how to go about securing money to start your business and what financing sources you can tap in to, from SBA-backed loans to angel investors. 

10 ways to get funding to start a business

  1. Bank or credit union loan
  2. SBA-backed loan
  3. Grants
  4. Personal savings or funds
  5. Friends and family members
  6. Home equity loan
  7. Retirement savings
  8. Business credit cards
  9. Crowdfunding
  10. Angel investors and venture capital firms

When it’s time to raise startup capital, consider these ways to fund your business:

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. The key feature is flexibility. You can use these funds to cover just about any business expense.

It may be difficult to qualify for a business loan or line of credit if you’ve been in business for less than a year—and especially if your company isn’t even up and running yet. Lenders usually ask about your annual revenue, pull your business credit score, and go through your business plan and financial statements. You may need to look for lenders that are willing to work with newly formed businesses. 

With any type of loan for a new business, you will likely need to provide a personal guarantee, which means you are personally responsible for making loan payments if your business can’t. 

2. SBA-backed loan

SBA loans are funded by banks, credit unions, and online lenders—but because they’re guaranteed by the US Small Business Administration, new businesses may find it easier to qualify for them. These loans are also filled with business-friendly features like low down payments, low interest rates, and little or no collateral required in some cases. 

However, you’ll need to provide a personal guarantee, and the approval process can be lengthy. Here’s a quick overview of the major SBA loan types:

504 loans

SBA 504 loans are granted up to $5 million and can only be used for construction, property renovations, equipment financing, and commercial real estate purchases. 

Standard 7(a) loans

Like 504 loans, SBA 7(a) loans are worth up to $5 million, and can be used for working capital, land purchases, debt refinancing in some cases, equipment purchases, and more. 


SBA microloans are limited to $50,000 and can be used for working capital, inventory, equipment, and more. Funds can’t be used for real estate purchases or to repay existing debts. 

To find a lender that offers SBA loans, you can use the SBA Lender Match or contact a local SBA District Office

3. Grants

Business grants are an attractive form of financing because they don’t have to be repaid. Many are geared toward minorities, women, and business owners in economically depressed areas. Competition may be fierce if you’ve only been in business for a few months, so you’ll need to research different grant opportunities and see if you qualify. 

There’s a database of federal government grants at, while your state or local government might offer information on business grants in your area. For more leads, you can also check out your nearest Small Business Development Center and Minority Business Development Agency.

4. Personal savings or funds

Compared to established companies, new businesses are more likely to use personal savings and disposable income than take out bank loans, according to a 2023 Federal Reserve report. An entrepreneur with substantial savings may dip into their savings account to fund their business without taking on debt and paying interest. Business owners that use this funding strategy typically set aside savings for personal emergencies. A common rule of thumb is to save at least three to six months worth of living expenses in an emergency fund.

5. Friends and family members

Raising capital from friends and relatives can be a way to borrow if your business is too young to qualify for other financing. There’s no credit check or application, and lending terms are usually flexible. However, the loan could damage your relationships if you don’t clarify the agreement upfront or you fail to repay the money.

Entrepreneurs who go this route will typically share their business plan and discuss expectations in advance. This ensures everyone is on the same page about whether the money is a gift or a loan, what the interest rate is, and any other terms. When all parties put these details in writing and sign an agreement, there’s a lower likelihood of misunderstanding and conflict down the road. 

6. Home equity loan

The average US homeowner is sitting on $274,000 in equity, according to real estate data provider, Corelogic. That makes a home equity loan or home equity line of credit an option for funding your small business, especially if your company can’t qualify for a standard business loan. 

Lenders usually let you borrow as much as 80% to 90% of the market value of your home, minus the balance on your mortgage. For example, say your house is worth $500,000, your loan balance is $300,000, and the lender allows a maximum loan-to-value ratio of 85%. Here’s how you can estimate your potential loan size:

Multiply your home value by the lender’s LTV ratio: 

$500,000 x 0.85 = $425,000

Subtract your mortgage balance from the result to find out how much you can borrow: 

$425,000 – $300,000 = $125,000

The proceeds can be used for any type of expense. And because they’re secured, home equity loans and home equity lines of credit (HELOCs) may come with lower interest rates compared to a business loan. But using your home as collateral can have a major downside. If you fall behind on payments, the lender can foreclose on your property. 

7. Retirement savings

There are two main ways to dip into a retirement account and use the money to start a business. Each method has its own pros and cons:

Taxable distributions

You can withdraw money from an individual retirement account (IRA) any time without repaying the funds. However, you’ll pay income taxes, which can range from 10% to 37%, based on your tax bracket, and an early distribution penalty of 10% if you’re younger than 59 and a half, according to IRS rules.

401(k) loan

Some 401(k) plans allow participants to borrow as much as 50% of their account value, up to a maximum of $50,000 within a 12-month period. The money can be used for any purpose, though you’ll need to repay the loan with interest within five years.

You may also hear about rollovers as business startups, or ROBS, arrangements. With this strategy, funds from a 401(k) or IRA are rolled over into a new C corporation’s retirement plan, then used to purchase stock in that C corporation, funding the new business. This may allow you to avoid penalties and taxes. The IRS warns ROBS promoters and sponsors can make mistakes that violate tax rules, potentially leading to a retirement plan’s disqualification from favorable tax treatment.

8. Business credit cards

A business credit card can be a way to fund your business, especially if you have excellent personal credit. The credit card lets you make purchases up to the credit limit, and the line of credit replenishes each time you pay off some or all of the balance. Many business cards let you finance purchases over time, though you will have to repay the balance in minimum installments and with interest. 

These cards also help you build business credit and typically come with features to help you track purchases, manage employee cards, earn rewards, and download records into your bookkeeping software. It’s easy to run up credit card debt, and small businesses only benefit from this option if they have revenue to pay the bill.

9. Crowdfunding

Crowdfunding involves raising money from many individual donors via websites like Kickstarter, Indiegogo, and GoFundMe. You can start one of these campaigns by creating a profile on a crowdfunding website, sharing your story, and outlining how much money you need. Then your audience can donate money using the fundraising platform. 

In some cases, you may decide to give donors a reward, such as a sample product or a thank you note. In other cases, you give supporters a stake in your business, offering them a chance to share in your success. This is called equity crowdfunding.

10. Angel investors and venture capital firms

Angel investors are wealthy individuals who provide seed money to startups using their own funds. Venture capitalists invest in early stage businesses on behalf of private venture capital firms. In exchange for their contributions, angel investors and venture capitalists receive an equity stake, or partial ownership, in the company. This setup can be appealing because it doesn’t involve repaying a loan, but you lose some management control and give up full ownership of your business. Some websites, such as AngelList, help connect business owners with investors, but you can also ask people in your professional network for references. 

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How to get money to start a business FAQ

Can I borrow money to start a business?

Yes, it’s possible to borrow money to start a business. Some business owners take out traditional business loans from a bank or credit union, while others qualify for an SBA guaranteed loan. Some lenders also allow a borrower to use a personal loan for business purposes.

What is the least amount of money you need to start a business?

Startup costs vary with every type of business model and for each company, but Shopify research shows the average business spends $40,000 in the first year. For most businesses, the biggest cost involves creating the service or product. Other expenses include developing and hosting a website, hiring workers, purchasing equipment, marketing, and shipping.

Can I get a loan from a traditional bank to start my business?

Many traditional banks and credit unions lend money to business owners, but it can be more challenging for startups to qualify for funding. That’s because newer businesses are untested and haven’t had much time to build business credit.

Do venture capitalists invest in early stage businesses?

Yes. Venture capitalists can invest in a business during any stage in the business lifecycle, but they often focus on early and seed-round funding.



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