Small Business Funding: 10 Ways To Fund Your Small Business | MoneyNuggets (2024)

Here’s a selection of 10 popular and practical sources of small business funding you might want to consider.

It typically takes two to three years for a new business to become stable and profitable. This means that in the early part of your business journey you will need to have access to other sources of funding to supplement your cash flow.

It’s vital that you find small business funding options you can afford, and that which suit your business model. Here’s a selection of 10 popular ways to fund your small business that you might want to consider.

10 Sources of Small Business Funding

1. Self-funding

The most common source of small businesses funding is your own funds. Before setting out on your entrepreneurial journey, it is well worth building up a buffer of savings from your previous salary, or, if you are continuing to work alongside setting up your business, investing a certain amount of your earnings in the business each month.

2. Equity Funding

Equity is when someone invests money in your company and gets shares in exchange. When your business starts to make a profit, the investor is then entitled to a proportion of the profit equal to their share in the company.

If you only need a small amount of start-up capital, and you can enthuse friends and family about your business idea, they make great first round equity investors.

3. Business Grants

Depending on your business model, you might be eligible for a grant. This form of small business funding is particularly attractive as you don’t have to repay the amount, and it is often accompanied by mentoring and other forms of business support.

Have a look at the UK’s Regional Growth Fund to see which grants are available in your local area.

4. Small Business Loans

If you have a good credit rating and are confident you will be able to pay back the interest, small business loans can be a good option for new business funding. The government backed Start Up Loans can provide entrepreneurs with up to £25,000 at a fixed rate of 6% PA; alternatively, there are many companies offering flexible business loans including larger sums for business growth and development purposes.

The great benefit of this option is that you don’t give shares of your business away to someone else.

5. Moonlighting

In a business context, moonlighting refers to doing another job alongside working for your own company. It’s a valuable option if you need a level of financial security, for example, if you have a mortgage to pay.

You might be able to continue working part-time for your old employer, and freelance platforms such as Fiverr and Upwork also offer a range of short-term contracts.

6. Start a Crowdfunding Campaign

Crowdfunding is a specific form of equity investment where you seek small amounts of funding from lots of different people, usually strangers, and collectively their investment adds up to the amount you need.

Crowdfunders’ expectations for the return on their investment vary, so it’s well worth looking to see what other companies are offering on Funding Circle and Crowdcube before pitching your idea.

Check out our exclusive interview with Exclusive Interview with Fiona Brinin-Webb on how crowdfunding really works.

7. Home Equity Loans

If you own your own home, you can leverage this asset and release some of the value in the form of a home equity loan.

This is a big risk, because your property is on the line if you default on the loan repayments, but if you are confident in your business proposition it can be a reliable way of raising large amounts of capital. Many high street banks offer home equity loans for small businesses.

8. Pre Sales

Can you make sales without holding physical stock? If so, pre-sales might be a great kind of small business funding for you. In essence, you make sales — and take either a deposit or full payment — from your clients up front.

You then use this capital to purchase your raw materials, stock, or the services you are selling, and deliver them to your customers. It works well if you have a short supply chain and can guarantee getting your product to the client within an acceptable time frame.

9. Trade Credit

Trade credit is a great way to do or start a business with no money. When wholesalers have a good working relationship with retailers, they will often offer trade credit options.

This means that you can take delivery of their goods, and make payment for them later. The terms will vary depending on your supplier, but two common options include a set term (i.e. payment after 30 days) or, less commonly, sale or return.

Even if trade credit is not available to you when you first start your business, it’s well worth requesting as the business grows and you have established your reliability as a buyer.

10. Peer to Peer Lending

Banks are not the only source of loans: your business may be eligible for peer to peer lending. This is similar to crowdfunding in that your supporters will be other ordinary members of the public, but they will give you a competitively priced loan rather than buying shares in your company. Zopa and Rate Setter are two of the most popular peer to peer lending sites in the UK.

There’s no one size fits all small business funding solution: every company has a unique business model and funding requirements. Three questions are very important:

  • How much do I need?
  • How long do I need it for?
  • Who might financially support my business?

These answers will help you decide which small business funding options are right for you.

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Small Business Funding: 10 Ways To Fund Your Small Business | MoneyNuggets (2024)

FAQs

Is the government giving out money to start a business? ›

The U.S. Small Business Administration (SBA) doesn't typically offer grants directly to small businesses. The Program for Investors in Microentrepreneurs (PRIME), however, offers federal grants to microenterprise development organizations so that they can provide assistance to disadvantaged microentrepreneurs.

How do small business owners fund their business? ›

Fund your business yourself with self-funding

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). With self-funding, you retain complete control over the business, but you also take on all the risk yourself.

What is the typical way a small business is funded? ›

Here are some common financing routes small businesses take: Bank loans: A traditional option, but requirements are strict. Lines of credit: Flexible access to funds as needed. Angel investors/venture capital: Equity financing ideal for high-growth startups.

What is the easiest SBA loan to get? ›

What is the easiest SBA loan to get approved for? Loans under the 7(a) program have a higher acceptance rate. And since most 7(a) loans are for $50,000 or less, it may be easier to get approved for a small amount with an Express loan. But you will still need to meet the minimum criteria to qualify and be approved.

What form of assistance does the government provide to small businesses? ›

The SBA offers several federal programs to lessen the difficulties of funding a small business. These programs come in three forms: grants, loans, and venture capital.

What organization helps small business owners borrow money? ›

The U.S. Small Business Administration (SBA) helps small businesses get funding by setting guidelines for loans and reducing lender risk. These SBA-backed loans make it easier for small businesses to get the funding they need.

Can I get a loan to start my own business? ›

Despite startup business owners often using alternative funding, it's still possible to find multiple business loans that would serve your needs without having to dip into other sources like personal funds. Here's a rundown of the different types of startup business loans you can apply for.

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

Personal investment

Personal investment is usually the first source of funds when starting a business. Using your own money means you won't have to apply for a loan or seek investments from people outside the company, which can take a long time.

What is the simplest method of raising money for a small business? ›

The simplest option to secure capital for your business is through a basic business loan. SBA loans typically offer the best rates and terms for small-business loans. To qualify, you typically need to meet certain criteria, but if you don't, there are many other lenders you can reach out to.

How much money is considered a small business? ›

Size standards

While the Consumer Financial Protection Bureau uses the SBA's general qualifications to define small business, the CFPB's size standard states that a business's gross annual revenue for the preceding fiscal year must be $5 million or less.

How do startups get funding? ›

Startups can get funding in different ways, including business loans, personal savings, friends and family, venture capital and startup grants.

Can I get money for opening a business? ›

Government Programs

The SBA has offices, called Small Business Development Centers, all over the United States that can coach you on available grants, plus provide business consulting and training. Grants.gov also has information on more than 1,000 federal grant programs.

What is it called when a government gives money to a business? ›

A subsidy is a benefit given to an individual, business, or institution, usually by the government. It can be direct (such as cash payments) or indirect (such as tax breaks).

Does the government lend money for a business? ›

The U.S. Small Business Administration (SBA) helps small businesses get funding by setting guidelines for loans and reducing lender risk. These SBA-backed loans make it easier for small businesses to get the funding they need.

How much money did the government give to small businesses? ›

Small Business COVID-19 Relief Grant Program

Small businesses with $1,000 to $100,000 in annual gross revenue are eligible for a $5,000 grant. Businesses with revenue between $100,000 and $1 million are eligible for $15,000.

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