Starting a new business is exciting yet scary. You’re responsible for wearing all the hats and owning the successes and shortcomings that follow. Imagine you own an airplane and are responsible for the following: designing the blueprints, the construction, piloting it, and serving as the flight attendant; that’s what it’s like to start and run a business by yourself. Not only are you responsible for the direction of the plane, the cleanliness of it, and its hospitality, but you’re also in charge of getting fuel for the plane. That is one of the most important aspects of getting in the air. Similarly, one of the most important steps all businesses face is securing funding for their company. Funding refers to the money needed to start and sustain a business (Garg & Gupta, 2021). Regardless of the size of the company you intend to have, every business needs capital to get started and to keep things moving. Startup funding covers things such as business licenses, incorporation, equipment, facilities, hiring, and marketing collateral (Garg & Gupta, 2021). However, not all funding is equal; there are several types, and it’s important to understand some key types. Let’s review some common forms of funding below.
Funding Type 1: Fuel You Already Have
Every flight begins with the fuel already in the tank. This is a mix of the money you own, the money those close to you are willing to put in, and the money your first customers give you before you’ve finished building. Financial bootstrapping is the use of limited financial resources to start a business (Janaji et al., 2021). This is the phase where many new business owners begin their journey.
- Self-Fund Your Business
Self-funding your business is more than likely one of the ways in which you will fund your company. Whether it’s initial startup costs, supplies, or other expenses, most owners will pay for some or all of these early on. If you’re a solopreneur, you’re likely aiming to keep your overhead low; therefore, self-funding is often a major form of funding for your business. Some options for funding include using savings from your bank account or taking money from your 401(k) for larger amounts. Keep in mind that pulling from a 401(k) early generally means paying income tax on the amount plus a penalty. There are structures that avoid this, but they require setup through a professional, so talk to an accountant before you touch your retirement funds.
- Friends and Family
The people who believe in you before the rest of the world are oftentimes your first investors. This money tends to arrive faster and at a lower cost than anything else available to you, which is why it deserves the most care. Decide up front whether what you’re accepting is a loan, a gift, or a share of the company, and then put it in writing. A signed one-page agreement feels unnecessary until the moment that it isn’t. The goal is simple: if the business struggles, the relationship shouldn’t.
- Revenue and Pre-Sales
One of the most overlooked sources of funding is your own customers. Deposits, retainers, pre-orders, and founding-member pricing are all forms of capital, and they cost you no interest or ownership. If you’re a service business, this may be the only funding you’ll ever need. It also tells you something no investor can: that people will actually pay for what you’re building. Money from a customer is both validation and fuel.
Funding Type 2: Fuel You Buy on Credit
Sometimes the tank isn’t always full enough, so you buy the rest. Borrowed money keeps your ownership intact, but it still comes due whether the business is flying or not.
- Small Business Loans
Small business loans are a way to obtain funding without involving another person. Banks and credit unions can provide these loans if you have a strong business plan, expense sheet, and financial projections. However, things such as your credit could be a key factor in your ability to obtain a small business loan.
- SBA-Backed Loans
The Small Business Administration (SBA) doesn’t lend money directly, but it guarantees loans made by partner lenders, which lowers risk for banks and opens the door to borrowers who wouldn’t otherwise qualify. The 7(a) program is the most common and flexible, which covers everything from working capital to business acquisition, with loans up to $5 million and terms as long as 25 years for real estate. For smaller needs, the SBA’s separate Microloan program offers loans up to $50,000 through nonprofit intermediaries rather than banks. This is often a better fit for very early-stage or underserved borrowers. 504 loans, meanwhile, are designed specifically for real estate and major equipment purchases.
- CDFIs and Microlenders
When a bank denial happens, this is the next opportunity. Community Development Financial Institutions (CDFIs) are mission-driven lenders that specifically serve businesses facing financial exclusion barriers and resource constraints in underserved markets (Johnson et al., 2025; Mosley, 2019). Common factors CDFIs help with that traditional banks pass on are thin credit histories, lack of collateral, and limited operating history. Many also provide coaching alongside the capital. If you’re building in an underserved community or you’ve been declined once already, start here rather than assuming that borrowing is off the table.
- Business Credit and Other Instruments
Business credit cards and lines of credit aren’t appropriate for launching your company, but they bridge the gaps between when you pay and when you get paid. Equipment financing uses the equipment itself as collateral, and invoice factoring turns unpaid invoices into cash today at a discount. Be aware that merchant cash advances are aggressively marketed to new business owners and often carry effective rates far higher than any loan would charge. If an offer arrives fast and easy with no credit check, be sure to review it very carefully.
Funding Type 3: Fuel You Trade for Seats on the Plane
You can also raise money by giving up a piece of what you’re building. This is the most expensive fuel there is, and the only kind that comes with passengers who get a say in where you fly.
- Angel Investors
Angel investors are high net-worth individuals who write checks from their own money, alone or with others, for ambitious startups (Botelho & Mason, 2024). This generally happens at the earliest stage, when there’s little more than a plan and some traction. If you’ve watched Shark Tank, you’ve watched angel investing. Those are wealthy individuals making personal bets, not a fund. Beyond the money, a good angel brings industry relationships and experience you can’t buy. The challenge is that they’re harder to find than a bank; most are discovered through introductions rather than applications.
- Venture Capital
Venture capital companies invest other people’s money through a managed fund, and the checks are considerably larger than what an angel typically writes. They’re also looking for a business that can grow fast enough to return the entire fund. Historically, venture capitalists have funded companies with high potential even with risky growth trajectories and returns (Bellucci et al., 2023). Most small businesses, no matter how profitable or well-run, aren’t a fit, and that isn’t a failure. It just means this isn’t the right fuel for you.
You must have a compelling business model for venture capitalists to back it. While the amounts could be substantial, it is important to understand that they will want some aspects of your company, from shares to creative control. Once you gain money from venture capitalists, you are no longer in full control of your business.
Funding Type 4: Fuel Someone Else Pays For
Finally, there’s money that you never repay, because someone else decided your work was worth funding.
- Grants
Grants come from more places than most founders realize. Federal and state agencies are the common sources, but private foundations and corporations also run their own programs. FedEx, American Express, and Hello Alice are examples of companies that fund small businesses directly. And while grants generally skew toward nonprofits, that isn’t the whole story: the federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs award billions annually to for-profit companies doing research and development. Whatever the source, you are obligated to report your spending of the grant funds.
- Crowdfunding
Crowdfunding is a funding model that not only raises capital but also enables consumers to be part of the development process; this could reduce the time and money spent on test marketing (Sharma et al., 2025). Crowdfunding comes in four major types, and they aren’t interchangeable. Rewards-based crowdfunding is used on platforms like Kickstarter, where backers pre-purchase your product, making it similar to a pre-sale with associated delivery obligations. Donation-based crowdfunding involves receiving donations (commonly for causes or charities) without needing to repay. Debt crowdfunding is borrowing from multiple lenders, who will be repaid at a predetermined time. Lastly, equity crowdfunding gives backers actual shares in your company, making it like what we mentioned in the previous section: you’re selling ownership, just to a crowd instead of a boardroom.
- Competitions, Accelerators, and Incubators
Pitch competitions are essentially free money with a marketing benefit included: you keep your equity and gain visibility, whether you win or not. Accelerators and incubators take it a step further, pairing capital with mentorship, workspace, and a network. Accelerators are known to use competitive entry and supply comprehensive support for early-stage firms, while incubators generally offer ad hoc training and host networking events (Madaleno et al., 2022). Some take a small equity stake in exchange, and many nonprofit programs take nothing at all. If you’re early and unsure which of the options above applies to you, this is often the most efficient place to begin, because the guidance is as valuable as the check.
Final Thoughts: Choosing Your Fuel
The right funding source is more about what fits than what’s available. Consider these four questions to narrow it quickly: 1) How fast do you need it, because grants and equity take months, while a line of credit takes days; 2) What does your credit and revenue history currently look like? 3) Are you willing to give up ownership, and have you thought through what that means five years from now? And 4) Is your business the type that investors fund? Most aren’t, and that’s not a shortcoming. A profitable consulting company and a venture-scale startup are different aircrafts, and they don’t take the same fuel.
Most businesses end up using several of these funding sources at different stages. The goal isn’t to pick one, it’s to know which fuel to use next along your business journey.
References:
Bellucci, A., Fatica, S., Georgakaki, A., Gucciardi, G., Letout, S., & Pasimeni, F. (2023). Venture capital financing and green patenting. Industry and Innovation, 30(7), 947-983. https://doi.org/10.1080/13662716.2023.2228717
Botelho, T., & Mason, C. (2024). ‘All for one and one for all?’ Business angel groups as collective action. International Small Business Journal, 42(8), 945-965. https://doi.org/10.1177/02662426241243383
Garg, M., & Gupta, S. (2021). Startups and the growing entrepreneurial ecosystem. Journal of Intellectual Property Rights (JIPR), 26(1), 31-38. https://doi.org/10.56042/jipr.v26i1.35258
Janaji, S. A., Ismail, K., & Ibrahim, F. (2021). Startups and sources of funding. United International Journal for Research & Technology, 2(08), 88-92. https://uijrt.com/paper/startups-and-sources-of-funding
Johnson, E. E., Lanahan, L., Joshi, A. M., & Hemmatian, I. (2025). The role of community development financial institutions in supporting inclusive economic development. Economic Development Quarterly, 39(3), 196-210. https://doi.org/10.1177/08912424251323208
Madaleno, M., Nathan, M., Overman, H., & Waights, S. (2022). Incubators, accelerators, and urban economic development. Urban Studies, 59(2), 281-300. https://doi.org/10.1177/00420980211004209
Mosley J. (2019). Community development financial institutions: Invaluable capital partners in low-income rural areas. State and Local Government Review, 51(4), 275–282. https://doi.org/10.1177/0160323X20928401
Sharma, A., Vij, S., & Kumar, A. (2025). Crowdfunding: Exploring the factors that could motivate people to raise fund or make investment through crowdfunding platforms in emerging countries. Vision: The Journal of Business Perspective, 29(1), 21-34.
https://doi.org/10.1177/09722629211056703
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