Business Capital: Definition and Where to Get It

Business capital can add value to your business, and may come in the form of debt, equity or grants.
Olivia Chen
By Olivia Chen 
Edited by Sally Lauckner

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Business capital, or small-business capital, commonly refers to lump sums of money that come from external sources and are used to fund business purchases, operations or growth. These sources can include small-business loans, as well as free funding like small-business grants.

The right type of business capital for you depends on how established your business is, as well as other factors like your funding purpose and how fast you need it.

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What is business capital?

Technically speaking, business capital is anything that generates value for your business. That can include financial capital like cash, human capital like employees and personnel or physical capital like real estate and intellectual property.

Business capital, or small-business capital, can also simply refer to external financing, or lump sums your business attains to fund operations or large purchases.

Types of business capital

There are several types of business capital that you can use to fund your business at various stages.

Debt funding

With debt funding — taking out a small-business loan — you borrow money from a third party and repay it, with interest, over a specific period of time. Debt funding can be a good option for a variety of small businesses, especially established companies looking to grow their operations.

Business term loans

With a business term loan, you receive a lump sum of capital upfront from a lender. You then repay the loan, with interest, over a set period of time — usually with fixed, equal payments.

Business term loans are well-suited for specific funding purposes, such as purchasing real estate or renovating your storefront. Some loans, like equipment financing, are designed to accommodate specific business purchases.

You can get business term loans from banks, credit unions and online lenders. Banks and credit unions will offer term loans with the most competitive rates and terms, but you’ll need to meet strict criteria to qualify. Online lenders are typically more flexible and may work with startups or businesses with bad credit. These companies will often charge higher interest rates.

SBA loans

SBA loans are partially guaranteed by the U.S. Small Business Administration and issued by participating lenders, typically banks and credit unions. There are several types of SBA loans, but generally, these products are structured as term loans.

These loans usually have low interest rates and long repayment terms and can be used for a range of purposes, such as working capital, equipment purchases and business expansions.

This type of government funding can be a good option if you’re an established business with good credit but you can’t qualify for a bank loan.

Business lines of credit

A business line of credit is one of the most flexible types of business capital — making it well-suited to meet the working capital needs of new and established companies alike.

With a business line of credit, you can draw from a set limit of funds and pay interest on only the money you borrow. After you repay, you can draw from the line as needed. Lines of credit are often used to manage cash flow, buy inventory, cover payroll or serve as an emergency fund.

Like term loans, business lines of credit are available from traditional and online lenders. Traditional lenders typically offer credit lines with the lowest rates but require an excellent credit history and several years in business to qualify.

Online lenders, on the other hand, may charge higher interest rates but generally work with a wider range of businesses. Some online lenders offer startup business lines of credit and/or options for borrowers with fair credit.

Business credit cards

Business credit cards work similarly to personal credit cards, although business cards typically offer rewards for spending on operational expenses, such as gas, internet, software purchases and more.

Business credit cards can be a good option for startups because they offer quick access to capital and most entrepreneurs with good personal credit can qualify. You may not want to completely fund your business with a credit card, however, because overspending can lead to expensive debt that’s difficult to repay.

In general, business credit cards can be useful for all types of entrepreneurs because they allow you to earn rewards (e.g., cash back, miles, points) for everyday spending on your business purchases. Responsible spending on a credit card can also help you establish business credit, which will allow you to qualify for more competitive loan products.

Bluevine - Line of credit
OnDeck - Online term loan
Funding Circle - Online term loan
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Equity funding

With equity funding, you receive money from an investor in exchange for partial ownership of your company. If you’re a startup that can’t qualify for a business loan or you want to avoid debt, equity funding may be a suitable option for your needs.

Angel investors and venture capital firms

Angel investors and venture capital firms are common forms of equity financing that involve receiving money in exchange for equity in your company.

With angel investors, you work with individuals who invest their money into your business. These individuals often invest in startups with high growth potential. In addition to the equity they receive, your angel investor may offer business expertise to help your company progress.

A venture capital firm, on the other hand, will be an individual or group that invests from a pool of money. VCs may require a higher amount of equity in your company as well as some operational control, such as a seat on the board of directors. Compared to angel investors, VCs tend to offer larger amounts of money and invest in businesses that are a little more established.

You can find angel investors and venture capitalists through organizations like the Angel Capital Association or the National Venture Capital Association. You can also search online for investors in your area as well as attend industry events and talk to other business owners.

Either of these startup funding options may be a good option for your business if you’re looking to avoid debt. Finding and receiving capital may take time, however, and some businesses may not be able to meet the requirements set out by an angel investor or venture capital firm.


With crowdfunding your business, you raise money online through public donations in exchange for equity or rewards, such as an exclusive product or early access to an event.

You can set up a campaign using a crowdfunding platform, which allows you to manage the process through the platform’s website.

With equity crowdfunding, you can use platforms like Fundable, StartEngine and Netcapital to receive capital in exchange for ownership of your business. For rewards-based crowdfunding, you can turn to well-known websites like Kickstarter or Indiegogo.

Crowdfunding can be well-suited for a range of businesses as long as they’re dedicated to managing and promoting a campaign. Rewards-based crowdfunding is usually a better option for small amounts of capital, especially for businesses with a unique product or service.

Equity crowdfunding, on the other hand, may give you access to larger funding amounts, but you may have to meet stricter eligibility requirements to use one of these crowdfunding platforms.

Free business capital

On top of these main sources of external financing, entrepreneurs can access free small-business capital through grants. Grants do not have to be repaid and are available from government agencies, corporations and nonprofits.

Small-business grants are available for new and existing businesses. You can get a business grant from a few sources:

  • Federal and state governments. Government agencies offer a range of small-business grants, including those designed for companies that focus on scientific research and technology innovation. provides a comprehensive list of business grants available from the federal government.

  • Private corporations. Many corporations offer annual small-business grant programs or competitions, such as the FedEx Small Business Grant Contest. In many cases, you have to meet specific criteria to qualify for one of these grants.

  • Nonprofits. Certain nonprofits offer grants designed for small-business owners. Among these organizations, some focus on providing business grants for women or business grants for minority groups.

Business grants are a good option for startups as well as companies that can’t qualify for other types of small-business capital. Because grants give you access to free capital, however, applications are competitive — and often time-consuming.


In addition to the previous external financing sources, many small-business owners also bootstrap, or self-fund, their business venture. Options for bootstrapping your business include using personal savings or tapping into their retirement account through a Rollover as Business Startup, or ROBS.

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How to get business capital

The right funding option is different for every small-business owner. And the best type of funding for you now might not be the best choice to meet your needs later.

  1. Consider why you need business capital. Your funding purpose is a key component of which type of business capital is best for you, and how much money you need. Plus, any potential lender or funder will likely ask for this information. 

  2. Decide which type of funding is best for your business. Before you start researching, think about which type of business capital is best for you. Consider if you would rather take on debt or give up business equity, how fast you need access to funding and your current resources and qualifications. 

  3. Research lenders or funders. Once you’ve decided which type of capital your business needs, you can begin researching providers — either lenders, investors or funding platforms — to determine the best options. 

  4. Gather documents. It may vary based on your capital provider, but generally you’ll need documents like your business plan, filing information and financial information like profit and loss statements, tax returns or bank statements. 

Frequently asked questions

How you get small-business capital depends on why you need capital and how long you’ve been in business. Startups may consider self-funding, working with angel investors or applying for grants. Businesses with at least a year in operation and solid finances, likely have more options, such as SBA funding and other types of business loans.

Capital in business generally refers to anything the business uses to generate value, including finances, physical assets, human resources and more. It can also refer to external sources of financing, like loans or grants.

If you need money to get your business off the ground, you’ll likely have difficulty qualifying for traditional funding, like a term loan or line of credit. Instead, you might turn to alternative sources, such as friends and family, crowdfunding, small-business grants or angel investors for the startup capital you need.

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