How to Get Funding for Small Businesses

So you have decided to become an entrepreneur and have the perfect business idea in hand? Your next greatest worry is, where to get the starting capital from. You are not alone. Many entrepreneurs are faced with this very problem. Read on and discover the different sources that offer funding for small businesses.

funding for small businesses feature image


It is common for new businesses to get turned down for bank loans and even the very established business don’t always find it easy to secure funds. It is easier for you to access the loans funded by the Small Business Administration. However, you should note that those too are becoming more and more competitive by the day.

So where do you get your start up cash? There are two ways to fund your business externally; debt and equity. Using debt means that the investor receives a note spelling out the terms of repayment, namely the interest rates and timing.

The up side of using debt is that you do not lose ownership of your company. The downside is that you got to pay back every single penny. Failure to pay means that the lender can force the company into liquidation under certain circumstances.

Using equity means that you as the business owner have to turn over an ownership stake to an investor in return for their cash. The upside of using equity is that you have zero obligations to pay back the money. The downside is of course the fact that you lose a part of the ownership. This will in most cases result in your losing some control over your company.

Now there are many various sources of equity and debt. We will analyze some of the common sources so that you know what your options are as you seek startup capital for your small business.


1) Small Business Lenders

There are many organizations out there that provide funding for small business. All you have to do is google ‘small business loans’ and see the numerous results. In most cases, lenders will require the loan to be secured by some kind of asset. The rates may also be quite high. For instance you may be given a loan with a 4% interest rate and a term of 30 days. However, according to the calculation, its really not 4%. Because the calculation is: 4 percent/ month x 12 months/ per year = 48 percent/ per year.

2) SBA Loans

The Small Business Administration contains many loan programs. These loans require a guarantee that the loan will be paid back, to help businesses get loans from traditional lenders.

3) Banks

Small business loans are available in traditional banks. However, they will need a track record and in most cases they will insist that you secure the loans with assets of some type.

4) Alternative Lenders: Kabbage Loans

Kabbage is a really great online alternative lender for small businesses. Kabbage is particularly ideal for you if you have bad credit. Applying for a Kabbage loan is very seamless and you only require about half the amount of revenue you would require with other lenders. On the downside, Kabbage Loans are very expensive. This is mainly due to the fact that they give quick and easy access to capital to customers with bad credit. Read our full Kabbage Review.


1) Bootstrapping

This basically means that the business funds itself.
As your small business continues to grow, it generates cash that will help to grow it further.

2) Self Funding

This is a commonly used means of funding a business. You can use savings or personal debt such as credit cards or second mortgage. You can also sell some of your assets e.g an old house to make the money to fund your new small business.

3) Family And Friends

Clearly, you can acquire equity or debt funding from your family and friends. This idea may seem like a really good one but take caution when selling part of your business to them. Ensure they are well aware of all the risks involved before investing. Otherwise, in case the business fails, it could result in some serious tension in the family and some broken relationships.

4) Cloud Funding

There are several groups that will give you the platform to pitch your business ideas through the internet. What happens when you get this kind of funding, is that numerous investors contribute funds to your idea. Take note that cloud funding comes with certain restrictions.

5) Angel Investors

These are affluent people who have a wish to invest in businesses. It is becoming more common for Angel investors to form investment groups to pool research and more importantly to spread the risk. You can search online for local Angels or speak to your chamber of commerce. They may be aware who is looking to invest in new ventures and ideas near you.

6) Partners

You can bring on a partner into your business as a source of funding. Depending on the terms of your agreement, the partner may become an employee of the business or simply remain a partner. Getting strategic partners can be really beneficial for your business in aligning resources. Here’s an example: if you are a property maintenance company, you can get a property management company as investors because you can eventually do maintenance work for them.

7) Venture Capital

These are firms that provide early stage funding but are really looking to make large investments and take a sizeable share of the company… mostly a controlling interest.

8) Crowdfunding

These are web based projects that provide various platforms to allow people with business ideas to reach out to tons of potential investors. The investment can be equity, debt or reward-based. Crowdfunding platforms are numerous so it is important that you do proper research before settling on one particular one.

Conclusion on How to Get Funding for Small Businesses

Some sources of investment capital are good and others not so good. Do not take private placement angels, family or friends as good just because We have listed them here. It is important that you handle the less established sources of investment with great caution.

Always have the legal paperwork in place before you spend anybody’s money. Have the papers reviewed by a professional and get them signed by both you and the investor(s).

Never spend money that you haven’t received just because it has been promised to you. Investments fall through all the time.

We hope the above information on how to get funding for small businesses helps you as you search for start up capital for your small business. As you can see, you have many options. Just take your time, do proper research and settle for the one most suitable for you.