Startup Capital for Small Business: 13 Funding Options Explained

As a small business owner, securing startup capital is often the biggest hurdle to overcome. You can secure up to $500,000 in funding with a Small Business Administration (SBA) loan.

To get started, it's essential to explore your funding options. This will help you determine which one is best for your business. With so many options available, it can be overwhelming to know where to begin.

A business credit card can be a good option for small businesses, with some offering rewards and cashback. However, be aware that interest rates can be steep, ranging from 12% to 30%.

Every business is unique, and its financial needs will shape the financial future of your business. Your personal financial situation and vision for your business will also play a significant role in determining your startup capital needs.

You'll need to figure out how much startup funding you'll need to get your business off the ground. This will depend on your specific business needs.

To determine how much funding you'll need, you can consider the following options for securing funding: Self-fundingInvestorsLoans

Discover more: Business Plan Financial Projections

Determining your needs is a crucial step in determining your needs. Every business is unique, and your personal financial situation will shape the financial future of your business.

Your business needs will determine how much funding you'll need. It's time to figure out how much startup funding you'll need.

You have three main options to consider: self-funding, investors, and loans. Here are the details:

Bootstrapping is an effective way of startup financing, especially when you're just starting your business. Self-funding, also known as bootstrapping, is a great funding option for people who don't have robust current assets that they can leverage to get loans from established financial institutions.

You can invest from your savings or get your family and friends to contribute, which will be easy to raise due to fewer formalities and costs. Family and friends are often flexible with the interest rate, making it a suitable option for small initial requirements.

Self-funding or bootstrapping should be considered as a first funding option because of its advantages. It's a good point in your favor when investors consider funding your business later on.

You can also stretch resources – both financial and otherwise – as far as they can by bootstrapping. This means finding ways to save money and improve your business cash flow, such as the 30 tips mentioned in the article.

To determine how much funding you'll need, consider your personal financial situation and vision for your business. This will shape the financial future of your business and help you decide how to get the funding you need.

Here are the options to consider for getting startup funding:

Self-funding your business can be a viable option, especially when you're just starting out. Using your own money means you retain complete control over the business, but you also take on all the risk yourself.

You can leverage your own financial resources to support your business through self-funding, which can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401(k).

Be careful not to spend more than you can afford, and be especially careful if you choose to tap into retirement accounts early, as you might face expensive fees or penalties.

Personal investment is usually the first source of funds when starting a business, allowing you to maintain control of your business and keep all the profits from your business activities.

You should aim to fund 25 to 50 percent of your business from your pocket, which shows prospective lenders and investors that you're personally willing to assume some risk and committed to your business's success.

Keeping a personal investment of at least 25 percent in your business can increase your equity and leverage, making your company more attractive to banks that can give you loans.

Most people get funding for their start-up from personal savings, inheritances, friends, or family, with personal savings being the most common form of equity investment.

On a similar theme: Personal Paypal

If you're looking to get investor funding for your small business, there are several options to consider. Venture capital from investors can provide the funding you need, but be prepared to give up some ownership and control of your company in exchange for the investment.

Venture capital typically focuses on high-growth companies and invests capital in return for equity, rather than debt. It's a higher-risk investment, but it can also offer higher returns.

One type of investor you can consider is an angel investor. Angel investors are individuals who invest their own money in startups in exchange for equity. They often invest smaller amounts than venture capitalists and may also offer business expertise to help your company grow.

Angel investors and venture capital firms are common forms of equity financing that involve receiving money in exchange for equity in your company. You can find angel investors and venture capitalists through organizations like the Angel Capital Association or the National Venture Capital Association.

For more insights, see: Company Run Small

Equity funding is another option to consider, where you receive money from an investor in exchange for partial ownership of your company. This can be a suitable option if you're a startup that can't qualify for a business loan or you want to avoid debt.

Some popular angel investors in India include the Indian Angel Network, Mumbai Angeland, and Hyderabad Angels. You can also consider venture capital firms such as Nexus Venture Partners, Helion Ventures, and Kalaari Capital.

Before seeking investor funding, it's essential to consider the pros and cons of each option. Venture capitalists, for example, typically look for larger opportunities with a strong team and good traction. They may also require a higher amount of equity in your company and some operational control.

Here are some key differences between angel investors and venture capital firms:

Ultimately, the type of investor funding that's right for your business will depend on your specific needs and goals. Be sure to carefully consider your options and seek advice from a financial advisor or business mentor before making a decision.

The Government of India has launched a 10,000 Crore Startup Fund to improve the startup ecosystem in India.

The Government-backed 'Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA)' starts with an initial corpus of Rs. 20,000 crores to extend benefits to around 10 lakh SMEs.

To qualify for a MUDRA loan, you just need to submit your business plan, and once approved, the loan gets sanctioned.

You'll receive a MUDRA Card, which is like a credit card, to purchase raw materials, other expenses, etc.

There are three categories of loans available under the MUDRA scheme: Shishu, Kishor, and Tarun.

If your startup or small business needs funding of more than 10 lakhs, you can apply for the Credit Guarantee scheme for micro & small enterprises.

In this scheme, the upper capital limit is 5 cr, which was recently updated from 2 cr.

SIDBI – Small Industries Development Bank Of India also offers business loans to the MSME sector.

For your interest: Greeting Card Business

In the US, there is a small business lending fund and a dedicated portal for Government grants available for local businesses.

The Small Business Innovation Research (SBIR) program encourages small businesses to engage in federal research and development that has the potential for commercialization.

The SBIR program offers competitive awards-based funding, which can be a good option for your business if you're involved in research and development.

You can use Lender Match to find lenders who offer SBA-guaranteed loans, which can be a good option if you have trouble getting a traditional business loan.

The Government of Canada's Business Benefits Finder provides financing sources, including government grants and subsidies.

The Small Business Technology Transfer (STTR) program offers funding opportunities in the federal innovation research and development arena, where small businesses work with nonprofit research institutions in the early and intermediate stages of starting up.

The STTR program can be a good option for your business if you're involved in research and development and want to collaborate with nonprofit research institutions.

The Indian government has also announced the Atmanirbhar Bharat package to fight the covid-19 situation, which may provide additional funding opportunities for small businesses.

Broaden your view: Nearby Businesses

Crowdfunding is one of the newer ways of funding a startup, and it has been gaining popularity lately. It's like taking a loan, pre-order, contribution, or investment from more than one person simultaneously.

Crowdfunding can also generate interest and help in marketing the product alongside financing. This process can cut out professional investors and brokers as well as reduce or eliminate the need for leverageable current assets.

In India, popular crowdfunding sites include Indiegogo, Wishberry, Ketto, Fundlined, and Catapult. In the US, popular crowdfunding platforms are Kickstarter, RocketHub, DreamFunded, Onevest, DonorBox, and GoFundMe.

Crowdfunding is a newer way of funding a startup that's been gaining popularity lately. It's like taking a loan, pre-order, contribution, or investment from more than one person simultaneously.

You can use crowdfunding platforms like Indiegogo, Wishberry, Ketto, Fundlined, and Catapult in India, or Kickstarter, RocketHub, DreamFunded, Onevest, DonorBox, and GoFundMe in the US.

Crowdfunding can generate interest and help in marketing a product alongside financing. It's also a good option if you're not sure if there will be demand for your product.

You can put up a detailed description of your business on a crowdfunding platform and mention your goals, plans for making a profit, how much funding you need, and why. Consumers can then read about your business and give money if they like the idea.

Crowdfunding is a competitive place to earn funding, so your business needs to be rock solid and able to gain the attention of consumers through just a description and some images online.

Business incubators and accelerators can be a great way to access funding for your startup. They can support start-ups at various stages of development, typically focusing on the high-tech sector.

Incubators share space and resources, making labs and administrative support available to new businesses. This allows companies to develop and test their products at a lower cost before starting production.

Companies usually stay in an incubator for two years, then leave to fly solo and produce their products themselves. Thanks to the support they receive, they have a better five-year success rate.

Incubators and accelerators are often found in major cities and assist hundreds of startup businesses every year. Accelerators are similar to incubators, but help businesses take a giant leap forward.

These programs typically run for 4-8 months and require a time commitment from business owners. You'll also be able to make good connections with mentors, investors, and other fellow startups using this platform.

Some popular incubators and accelerators in the US include Y Combinator, which helped companies like Dropbox and Airbnb.

Grants and Funding Programs can be a great way to secure startup capital for your small business. The Small Business Innovation Research (SBIR) program encourages small businesses to engage in federal research and development with potential for commercialization.

Some government agencies provide grants to Canadian businesses to help them innovate. Grants can be used to pay for research and development, marketing, salaries, equipment, and boosting productivity. Additionally, if you obtain a grant, your business may be eligible for additional financing if it meets certain requirements.

To be eligible for a grant, your company must match the grant amount, with the required investment varying greatly from one organization to another. For example, in the case of a research grant, you may only have to provide 40% of the total cost. You also need to comply with the conditions of the grant to keep it, and failing to do so may result in having to pay it back.

To apply for a grant, you'll need to provide a detailed description of your project, including its location and benefits, a detailed work plan with full costs, a description of the experience and background of key individuals in the business, and duly completed application forms, if required.

The Government of Canada's Business Benefits Finder provides financing sources, including government grants and subsidies. You can also explore government programs in India, such as the 10,000 Crore Startup Fund and the Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA) scheme, which offer startup capital and loans to small businesses.

Here are some government-backed programs that offer startup capital:

You can access various forms of financing to start your business, including bank loans, grants, business incubators, and funding from friends and family. These options can be combined, but each has specific requirements.

To secure a business loan, you'll need to show a solid business plan and a good credit rating. This is especially true for start-ups, which often have a harder time accessing loans than established firms.

You can find small business loan programs specific to your province using the Business Benefits Finder. This tool can help you navigate the different options available.

Government-backed programs can also provide startup capital. For example, the Government of India has launched a 10,000 Crore Startup Fund to improve the startup ecosystem.

Other options include the Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA) scheme, which offers loans with an initial corpus of Rs. 20,000 crores. You'll need to submit your business plan and get approved to receive the loan.

For more insights, see: Start Floral Business

Here are some government programs that offer startup capital:

Government grants can also be a viable option, but you'll need to comply with the eligibility criteria. It's essential to be aware of the various government initiatives available to you.