7 Funding Ideas to Help Start Your Business

May 15, 2024 Patrick Means
When starting a small business, the first thing you need is a plan. Then you can look for funding. Here are seven ideas to help you get up and running.

I've had a lot of clients who are entrepreneurs. They come in excited about an idea they have for a small business and ask for advice on how to get funding to start it up. The first thing I do is tell them about my grandfather. That stops them for a minute, but it also ends up inspiring them. You see, my grandfather ran a successful small business. He was a gifted carpenter who went from teaching at a technical college to becoming the finest and most sought-after furniture maker in his city. I was proud of him for his unique skill, but also for the way he grew his business, making connections in the community and ultimately building wealth for his family. He opened doors for himself and for all of us.

I love that entrepreneurial spirit. And I recognize how important it is to our economy. Indeed, 
small businesses generated 12.9 million net new jobs over the past 25 years, accounting for two out of every three jobs added to the economy, according to the Small Business Administration.

But as someone in the financial business, I also know it takes more than a good idea and a unique skill to get a small business off the ground. It takes research, planning—and yes, money—to get started.

So the second thing I may say to someone who wants to start their own business is: show me your plan. Have you researched your market? Do you know your competitors, both direct and indirect? What are the start-up costs? Will you need employees? How will you sustain your business if things get tough? Now let's say you've thought it through. You have the idea, the skill, and your plan of action. The next step is finding the cash.

Here are seven funding ideas to help start your business.

1. Bootstrapping

That means exactly what it sounds like—you fund it yourself. It turns out that over 70% of small business owners use personal savings to fund and grow their businesses, according to the U.S. Chamber of Commerce. If you've planned ahead and saved up some seed money, great. But if you're eyeing your 401(k) or other retirement fund as a source of cash, think very carefully—and consider this a last resort. An early withdrawal from a tax-deferred account before age 59½ means you'll pay a 10% penalty on top of ordinary income taxes. Plus, you could even put your retirement at risk. Make sure you understand the potential consequences.

2. Friends and family

This could be a great opportunity to involve your inner circle with your success, and they typically will be your biggest fans. In fact, 38% of startups relied on friends and family over the past five years, according to the U.S. Chamber of Commerce. But here again, a word of caution. Consider getting any financial agreements in writing. If it's a loan, spell out the terms (hopefully interest-free!) and how and when you'll pay it back. If it's an investment, consider making it clear there are no guarantees. You don't want money to tear apart your relationships.

3. SBA microloan

The U.S. Small Business Association offers a variety of loans, but most are geared toward more established small businesses. However, SBA microloans, loans of up to $50,000, could be an alternative to tapping into your IRA if you need a smaller amount for something like working capital, inventory, equipment, or a vehicle. These loans often support businesses operating in underserved communities, businesses of a certain size, or female-run businesses. SBA-backed loans offer a variety of benefits, including competitive terms and counseling and education. It's worth finding out if you qualify.

4. Business loan

An alternative to an SBA loan is a business loan from a bank. A bank loan will generally have more restrictions and will most likely require a personal guarantee. But if the terms are reasonable—and borrowing is part of your business plan—it could make sense.

5. Personal loan

If you have a strong personal credit history and low debt balances, you could be able to find a fixed-rate personal loan at a reasonable rate. But be sure to confirm you can use the loan for business. Also realize that if you miss payments or can't repay the loan, it will hurt your credit score.

6. Crowdfunding

Are you social media savvy? This could be a great way to get your idea out in the marketplace as well as get seed money. Crowdfunding platforms, like Kickstarter and GoFundMe, make it easy to launch your campaign and generate buzz about your business. But you can't just ask for the money; you may need to tell a compelling story. Plus, it could help if you can get your own network to share it far and wide. Crowdfunding typically doesn't need big donations—it needs a lot of donors!

7. Angel investor

This may well be every entrepreneur's dream, but the reality is that finding an angel investor could be unlikely as a startup. An established business may be more likely to attract funds from outside investors. Plus, having investors could mean giving up some control or ownership.

Follow your passion by being prepared.

For anyone who is talented, creative, and driven to make their small business work, I say go for it—but be prepared. Write down your business plan. Carefully consider how much funding you need and your best options for getting it. And be wary about borrowing more than you can pay back.

Last but not least, gather your own team of experts to help you. You may have the skill and the drive, but you may not have all the business expertise needed. Whether it's taxes, sales, marketing, or wherever you need help, consider finding someone who shares your passion but complements your skills. Sure, money is important to get your business off the ground. But, carefully thinking it through and having a support system could help you make it the success you envision.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.