While finding ways to fund startups can feel overwhelming and stressful, there are things you can do to get the money you need to get your business off the ground.

Funding startups, also called startup capital, is money entrepreneurs use to launch new companies. This money can come from various sources and is used for hiring employees, purchasing inventory, renting office or warehouse space, and other operating expenses supporting starting a business.

You have your million-dollar idea, but now you need funding to get your great business idea off the ground. That’s what today’s article is all about. 

Continue reading to learn more about funding startup businesses below.

How Does Funding Startups Work?

Startup funding takes many forms and can look very different from one to the next. Generally speaking, though, it’s money that falls into one of three categories types: 

1. Investors — Venture capital firms or angel investors are organizations looking to invest in startups with high growth and earning potential. This form of funding doesn’t typically involve monthly payments. However, you will be giving up partial ownership of your company. 
Some investors will want to take an active role in various parts of your company, while others may want a more hands-off approach.


2. Self-funding — If you have enough money in your personal savings accounts, you may opt to bootstrap (self-fund) your startup company. Funding your startup with your own money, such as retirement savings if you use an option like rollovers as business startups (ROBS), helps you retain 100% (read: complete control) of your company (unlike those with investors) and avoid paying interest (like you would with loans). 
The significant risk with self-funding is the real possibility of losing your life savings if your idea fails.
3. Small-business loans — A small-business loan allows you to retain full ownership of your startup. However, you’ll have to begin repaying your loan, plus interest, right away. Most traditional lenders, like banks, will lend only to established businesses or ones with financial backing. 
As a startup business, you might need to look into other funding sources, such as online lenders.

9 Innovative Ways to Fund Startups

Securing startup capital can be a challenging task, especially if you want to go the traditional financing route. While some banking lenders will fund startups, their requirements are likely quite rigid, and they often require some sort of collateral valued at least the same amount as your loan request.

If that doesn’t sound like something you want to do or can swing, other startup company funding options are available. Knowing your business goals and financing needs can help you select the right type of funding for your startup. Within the three sections mentioned above, you’ll find some more specific types of ways you can fund your startup below:

1. Small Business Administration microloan — The United States Small Business Administration (SBA) offers many loan programs, some of them catering specifically to startup companies. One of these programs is the SBA microloan, which can provide businesses with up to $50,000 for inventory, working capital, furniture, supplies, fixtures, equipment, machinery, and more.

2. Personal business loans — Personal business loans can be a great option for startup owners with strong personal finances. Loan amounts might be smaller, and terms might be shorter than a standard business loan, but many personal business loans are funded within a week of approval. 
Moreover, depending on your credit score, you can get a lower interest rate than other financing options. Ensure your lender has no issues using a personal loan for business purposes.

3. Microlenders — Private and nonprofit lenders can also supply microloans to startups that might not qualify for a traditional business loan. These lenders often support minority or traditionally underserved small businesses. Microloans often come with favorable terms, and making on-time payments can help build up your credit, making it easier to get more financing in the future.

4. Venture capital — Venture capitalists typically save their investments for high-growth companies, because there’s a significant amount of risk associated with small business startups. If the startup fails to take off, the investors won’t see returns on their investments. Most venture capitalists want at least a place on the board of directors of the company they’re helping finance. Some might even want more ownership.

Small business grants

5. Small business grants — While the competition is high in the startup business grants world if you can secure one, you are looking at money, free and clear, for your startup company. You do not have to pay back the money, and zero interest is associated with loans. If you fall into a niche or minority group, such as veteran or female, you might have better luck locking down a grant for your startup.

6. Family and friends — If you want to avoid the traditional lender route for one reason or another, a loan from family or friends could help fund your business. While these loans might not come with much (or zero) interest, they can be a huge risk if they start to affect your personal relationships.
Putting any terms into writing can aid in setting clear expectations for both sides and ensuring everyone feels comfortable with all of the risks involved.

7. Online lenders — Online lenders, typically alternative or nonbank lenders, can be viable if you are looking for ways to fund your startup, especially if you hope to move fast. Online lenders typically require less collateral, a lower credit score, and less paperwork than traditional lenders. The hang-up is that they often have more fees and high interest rates associated with the loan.

8. Credit cards — Business credit cards can temporarily provide startup capital when used sensibly and responsibly. A credit card with 0% introductory APR can be handy if you need short-term financing for critical and essential purchases. If you opt for this route, make sure you have a solid plan to pay off the balance before your introductory terms expire and the variable APR sets up.

9. Crowdfunding — Another innovative and nontraditional way to fund a startup is by crowdfunding. Crowdfunding allows entrepreneurs to raise cash for their companies, often through online campaigns. Business owners will offer gifts to people who donate to your campaign (like free products or merchandise) to motivate donations. Design your campaign to fit your specific budget and needs.

5 Steps for Funding Startup Businesses

Getting a startup company off of the ground is an exciting yet overwhelming position to be in. If you’re ready to get going, follow the following five steps to get funding for your startup:

  1. Identify the funding you need — If you want to finance a big, one-time purchase, a business credit card may be the right choice. However, an investor or lender might make more sense if you’re looking for substantial funding. Determine how much money you will need before you begin sending in applications, networking, and setting meetings with people.
  2. Write out your business plan — Next, you’ll want to put pen to paper and outline your business plan. Most potential investors and lenders insist you have a business plan. This important document outlines your business model, capital needs, how you plan to be profitable, and many other things.
  3. Gather necessary documents — You’ll need to compile key documents, like bank statements, personal and business tax returns, legal documents related to your business, and other business financial statements. This includes commercial leases, articles of incorporation, and profit and loss statements.
  4. Determine the right type of funding for you — Do your research, meet with trusted professionals, such as lenders and financial advisors, and talk to other startup founders to understand which type of funding is best for your business. Once you have that pinned down, target your applications accordingly.
  5. Make a plan to pay it back — If you plan to or are required to repay any money, plan how you’ll pay it back before you borrow it. Use a credit card payoff calculator or business loan calculator to help estimate monthly payments to ensure they fit into your budget.
Funding Startup Businesses Lighthouse Financial Can Help

Funding Startup Businesses: Lighthouse Financial Can Help!

If you are looking for ways to fund startups, the funding specialists at Lighthouse Financial are here to help you!

Our team is here to assess your current situation, identify the best options for you, and execute the funding process to get your startup business off the ground. We work hard to understand your unique situation and your funding needs and build a funding solution that is specifically designed for you.

We are not here to rake you over the coals with ridiculously high interest rates or astronomical monthly payments. We aim to provide your startup company with affordable, real working capital and maintain a successful, long-term relationship. We measure our success by yours and are along for the ride every step of the way.

Ready to apply for funding startups? Applying won’t affect your credit score. Contact Lighthouse Financial or apply online today!