Startup Funding: What It Is and How to Get Capital for a Business
Startup funding can come from your own personal savings, family and friends, loans, investors, grants and more. But there are trade-offs to each.
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What is startup funding?
Startup funding, or startup capital, is money used to launch a new business. You can use the money to hire employees, rent space, buy inventory or cover other operating expenses necessary to get your business off the ground.
Startup capital can come from a variety of sources, including small-business loans, investors, grants or your personal savings.
Knowing your financing needs and business goals will help you choose the right type of startup funding for your business.
How much do you need?
We'll start with a brief questionnaire to better understand the unique
needs of your business.
Once we uncover your personalized matches, our team will consult you
on the process moving forward.
How startup funding works
Getting startup funding can be hard, especially through traditional banks. Although some banks will fund startups, most prefer to see at least two years in business and strong revenue. Offering collateral can help, but approval isn’t guaranteed.
Due to these limits, many new business owners turn to online lenders, investors, grants and their own savings.
In some cases, the type of funding you pick can affect the ownership of your startup. For example, loans typically allow you to keep full ownership, while investor funding may involve sharing equity and control of your company.
» MORE: Startup business loans
Loans for startups
| Product | Min Credit | Min Time In Business | |
|---|---|---|---|
 SBA microloan with Fundera by NerdWallet | 620 | N/A | with Fundera by NerdWallet |
 Bluevine - Line of credit Nerdwallet Rating with Fundera by NerdWallet | 625 | 12 months | with Fundera by NerdWallet |
 Headway Capital - Line of credit Nerdwallet Rating with Fundera by NerdWallet | 625 | 6 months | with Fundera by NerdWallet |
 Fundbox - Line of credit Nerdwallet Rating with Fundera by NerdWallet | 600 | 3 months | with Fundera by NerdWallet |
 OnDeck - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 625 | 12 months | with Fundera by NerdWallet |
Types of startup business funding
The amount of money you need and how quickly you need it will guide which option works best for you. Here are some types of startup capital to consider.
1. SBA microloans
The U.S. Small Business Administration offers several loan programs, some of which cater specifically to startups. One example is the SBA microloan, which can provide up to $50000 for working capital, inventory, equipment and other startup costs. These loans usually require some form of collateral and a personal guarantee.
» MORE: How to get an SBA startup loan
2. Microlenders
Private and nonprofit lenders also offer microloans to startups that may not qualify for a standard business loan. They often support minority or traditionally underserved small businesses and typically offer favorable terms.
On-time payments on microloans can help you build your credit — which can make future borrowing easier.
3. Online lenders
Online lenders, also known as nonbank or alternative lenders, offer fast and flexible funding. Their minimum time in business and credit score requirements are typically lower than banks, making them a viable option for startups.
Online business loans are also easier to apply for and often don’t require collateral. The trade-off? Expect higher interest rates and fees.
4. Small-business grants
Startup business grants can be hard to get because competition is high. However, if you can secure a grant, you’re looking at free money for your startup. You don’t need to pay grants back like you would a loan. You also don’t usually share ownership, like you do with an investor.
If you’re a member of an underserved group, here are some business grant options to consider:
5. Angel investors
Angel investors are wealthy people who invest their own money in new businesses they believe have potential for strong returns. Like grants, you don’t have to pay the money back. But you’ll likely have to give up a piece of your company.
Some angel investors take an active role in the decision-making process, while others take a more hands-off approach.
» MORE: How to fund your business idea
6. Personal business loans
Personal business loans can be a solid option if you have stable income, strong credit and a low debt-to-income ratio. Loan amounts may be smaller and terms may be shorter than traditional business loans, but funding can be quick (within a week of approval, in some cases).
Depending on your credit score, personal loans can have lower interest rates than other financing options. Just be sure that your lender allows you to use the borrower cash for your business.
7. Crowdfunding
Crowdfunding platforms allow you to raise money from a large group of people online. You set up a crowdfunding campaign to pitch your product or service and set a funding goal. In exchange for their cash contributions, you give investors (sometimes called “backers”) some kind of reward, like the product, early access or a special discount. Another option is equity crowdfunding, where investors receive actual ownership in your business in exchange for their cash contributions.
If you’re just starting out, crowdfunding can be a good way to test a new product idea or service, as well as get feedback. But you’ll need to tell a compelling story for your campaign.
8. Self-funding
If you have enough saved up, you can always self-fund, or bootstrap, your startup. This could involve using your own personal savings, tapping into your home’s equity or using your retirement savings through a Rollover as Business Startup (ROBS) transaction.
Self-funding can help you avoid debt while maintaining full control of your company. However, you could lose your hard-earned savings if your business fails.
9. Friends and family
If traditional lenders aren't an option, family and friends loans may help fund your new business. While these loans may come with little or no interest obligations, they can strain your personal relationships if things don't go as planned.
Putting the loan terms in writing can help set clear expectations and make sure everyone knows the risks involved.
10. Venture capital
Venture capitalists, primarily investment firms, tend to only invest in high-growth companies. This can be a good option if you need a lot of money, but you’ll have to give investors a piece of your company, and probably a seat on the board of directors, too.
» MORE: What is equity financing?
11. Business credit cards
Business credit cards can provide short-term financing for key purchases and expenses when used responsibly. A 0% introductory APR credit card can be especially useful if you can pay off your balance before the introductory offer expires.
Business credit cards are often preferred over personal credit cards because they can offer higher credit limits and business-specific rewards.
How to fund a startup
Though the process of getting money for your startup will vary, here are five basic steps you can take:
- Figure out how much you need. Calculate how much money you need before you start submitting applications or reaching out to your network. If you want to finance a large, one-time purchase, a business credit card might be the right move. Or, if you need to buy machinery, an equipment loan may be a good option. If you need a lot of startup capital, an investor might make more sense.
- Write a business plan. Many lenders and potential investors require a business plan. This roadmap outlines your business model, funding needs and plan to turn a profit, which can persuade others that giving you money is a smart decision.
- Compile key documents. Lenders typically want to see business and personal tax returns, bank statements, profit and loss statements and other business financial documents. You may also be asked for legal documents relating to your business such as articles of incorporation, commercial leases and contracts.
- Decide which type of funding is right for you. Do your research to make sure you understand which type of funding is best for your business and then target your applications accordingly. You may also want to have a backup choice in case your first option doesn’t work out.
- Make sure you can pay back borrowed funds. Map out a plan for how you’re going to repay any money you borrow before you borrow it. Using a business loan calculator can help you estimate loan payments and ensure the repayment amounts fit into your monthly budget.
Frequently asked questions
How do startups get funding?
Startups can get funding by estimating how much capital they need, gathering key documents including a business plan, choosing the right funding option and running numbers to understand how much they can afford to borrow or exchange for equity.
What is the best type of funding for startups?
The best type of startup funding depends largely on the type of business, funding amount and the business owner’s financial situation.
If you don’t have the option to fund your business personally or through family and can’t qualify for a traditional bank loan, an online lender can be a quick alternative. If you want to avoid debt and are okay trading ownership, a type of equity financing — like crowdfunding, venture capital or angel investors — might work for you.
How much do you need to fund a startup?
It depends on the type of business and its location. A restaurant, for example, requires lots of inventory, employees, equipment and property or rental space to operate. The startup costs for a small restaurant can range anywhere from $175,000 to $700,000 or more. Conversely, an online consulting business could start operating from a business owner’s home for the cost of a website, a phone and a computer.
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