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Small Business Administration

/Business Guide/Plan your business/Fund your business

Fund your business

It costs money to start a business. Funding your business is one of the first — and most important — financial choices most business owners make. How you choose to fund your business could affect how you structure and run your business.

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Determine how much funding you’ll need

Every business has different needs, and no financial solution is one size fits all. Your personal financial situation and vision for your business will shape the financial future of your business.

Once you know how much startup funding you’ll need, it’s time to figure out how you’ll get it.

Self-funding

Piggy bank

Investors

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Loans

Bank and money

Fund your business yourself with self-funding

Otherwise known as bootstrapping, self-funding lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401k.

With self-funding, you retain complete control over the business but you also take on all the risk yourself. Be careful not to spend more than you can afford, and be especially careful if you choose to use tap into retirement accounts early. You might face expensive fees or penalties, or damage your ability to retire on time — so you should check with your plan’s administrator and a personal financial advisor first.

Get venture capital from investors

Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company.

Venture capital differs from traditional financing in a number of important ways. Venture capital typically:

  • Focuses high-growth companies
  • Invests capital in return for equity, rather than debt (it’s not a loan)
  • Takes higher risks in exchange for potential higher returns
  • Has a longer investment horizon than traditional financing

Almost all venture capitalists will, at a minimum, want a seat on the board of directors. So be prepared to give up some portion of both control and ownership of your company in exchange for funding.

How to get venture capital funding

There’s no guaranteed way to get venture capital, but the process generally follows a standard order of basic steps.

  1. Find an investor 
    Look for individual investors — sometimes called “angel investors” — or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with startup companies.
  2. Share your business plan
    The investor will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.
  3. Go through due diligence review
    The investors will look at your company’s management team, market, products and services, corporate governance documents, and financial statements.
  4. Work out the terms 
    If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions for the fund to make an investment.
  5. Investment
    Once you agree on a term sheet, you can get the investment! Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally come in “rounds.” As the company meets milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.

Use crowdfunding to fund your business

Crowdfunding raises funds for a business from a large number of people, called crowdfunders. Crowdfunders aren’t technically investors, because they don’t receive a share of ownership in the business and don’t expect a financial return on their money.

Instead, crowdfunders expect to get a “gift” from your company as thanks for their contribution. Often, that gift is the product you plan to sell or other special perks, like meeting the business owner or getting their name in the credits. This makes crowdfunding a popular option for people who want to produce creative works (like a documentary), or a physical product (like a high-tech cooler).

Crowdfunding is also popular because it’s very low risk for business owners. Not only do you get to retain full control of your company, but if your plan fails, you’re typically under no obligation to repay your crowdfunders. Every crowdfunding platform is different, so make sure to read the fine print and understand your full financial and legal obligations.

Get a small business loan

If you want to retain complete control of your business, but don’t have enough funds to start, consider a small business loan.

To increase your chances of securing a loan, you should have a business planexpense sheet, and financial projections for the next five years. These tools will give you an idea of how much you’ll need to ask for, and will help the bank know they’re making a smart choice by giving you a loan.

Once you have your materials ready, contact banks and credit unions to request a loan. You’ll want to compare offers to get the best possible terms for your loan.

Use Lender Match to find lenders who offer SBA-guaranteed loans

If you have trouble getting a traditional business loan, you should look into SBA-guaranteed loans. When a bank thinks your business is too risky to lend money to, the SBA can agree to guarantee your loan. That way, the bank has less risk and is more willing to give your business a loan.

Use Lender Match to find lenders who offer SBA-guaranteed loans.

Lender Match helps you find lenders

Lender Match is a free online referral tool that connects small businesses with participating SBA-approved lenders.

How it works

Applying on computer

1. Describe your needs


Answer a few questions about your business in as little as five minutes.

Calendar

2. Get matched in 2 days


Receive an email with contact information of lenders who express interest in your loan.

Lender meeting

3. Talk to lenders


Compare rates, terms, fees, and more.

Piggybank

4. Apply for a loan


Submit loan applications and paperwork. You’re well on your way to securing a business loan!

Get ready

Before you start talking to lenders, have a look at the abbreviated checklist to see if you’re ready.

Business plan


Most lenders expect a business plan when you apply for startup funding. If you need to create one, follow our free business plan guide.

Amount and use of funds


Know how much capital you need and how it will help your business. You can’t use an SBA-approved loan to flip a house.

Credit history


Lenders use credit scores to determine credit risk and interest rates. The SBA helps guarantee some loans that otherwise may not qualify.

Financial projections


Show you understand your business’ finances, how the funds will be used, and how you’ll pay back the loan.

Collateral


Many lenders require you to use another asset to guarantee your loan. This can be a home, car, inventory, or other property you own.

Industry experience


Industry experience isn’t required, but it’s helpful. Firsthand knowledge about your industry can make your lender feel confident about making a loan.

Details

What happens next?

You’ll receive an email with contact information of interested lenders two business days after you submit the form. From there, you’ll start talking to lenders and completing applications. Some will reach out to you, and you’re welcome to contact them as well.

Am I guaranteed to get matched?

No, using Lender Match doesn’t guarantee that you’ll get matched or be offered a loan. Lender Match isn’t a loan application — it’s a tool to help businesses find lenders in their communities.

What should I ask a lender?

Ask lenders about interest rates, minimum credit score, cash flow requirements, and other qualifying factors. Get an understanding of prepayment penalties, grace periods, and if/when the lender can demand full repayment of the loan’s principal.

Why am I asked my personal information?

The personally identifiable information you share will be used to connect you with prospective SBA lenders. Registering and providing responses to the questionnaire is no guarantee that SBA-approved lenders will find you eligible for their programs.

How many lenders participate?

More than 800 lenders participate in Lender Match throughout all 50 states and U.S. territories. While all lenders who use Lender Match offer SBA-approved loans, many also offer conventional loans.

Where can I learn more about loans?

We’re glad you asked! You can learn about our loan programs in more detail online. If you need to talk to someone about Lender Match, you can contact us or email us at lendermatch@sba.gov

Loans

Start or expand your business with loans guaranteed by the Small Business Administration. Use Lender Match to find lenders that offer loans for your business.

The SBA helps small businesses get loans

The SBA works with lenders to provide loans to small businesses. The agency doesn’t lend money directly to small business owners. Instead, it sets guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions. The SBA reduces risk for lenders and makes it easier for them to access capital. That makes it easier for small businesses to get loans.

Benefits of SBA-guaranteed loans

A man reviews financial documents and enters numbers into a calculator.

Competitive terms


SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans.

Two women review documents.

Counseling and education

Some loans come with continued support to help you start and run your business.

A woman drops a coin into a coin jar.

Unique benefits


Lower down payments, flexible overhead requirements, and no collateral needed for some loans.

Get $500 to $5.5 million to fund your business

Loans guaranteed by the SBA range from small to large and can be used for most business purposes, including long-term fixed assets and operating capital. Some loan programs set restrictions on how you can use the funds, so check with an SBA-approved lender when requesting a loan. Your lender can match you with the right loan for your business needs.

Graphic of a faucet, lightbulb, cash, and check.

Working capital


Like seasonal financing, export loans, revolving credit, and refinanced business debt.

Graphic of a computer screen, office chair, oven, and bulldozer

Fixed assets


Like furniture, real estate, machinery, equipment, construction, and remodeling.

Eligibility requirements

Lenders and loan programs have unique eligibility requirements. In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Normally, businesses must meet size standards, be able to repay, and have a sound business purpose. Even those with bad credit may qualify for startup funding. The lender will provide you with a full list of eligibility requirements for your loan.

Table of size standards

The table of size standards can also be found online in the small business size regulations set forth in the Electronic Code of Federal Regulations.

You can also check whether your business is small using the size standards tool.

Certain government programs, such as SBA loan programs and contracting opportunities, are reserved for small businesses. In order to qualify, businesses must satisfy SBA’s definition of a small business concern, along with the size standards for small business.

What is a small business size standard?

A size standard, which is usually stated in number of employees or average annual receipts, represents the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business for SBA and federal contracting programs. The definition of “small” varies by industry.

How to calculate your small business size

Size standards are mostly based on the average annual receipts or the average number of employees.

More information

For more information about size standards, contact the size standards specialist at your nearest SBA Government Contracting Area Office. You also can contact the Office of Size Standards by email at sizestandards@sba.gov or by phone at 202-205-6618.

Stay safe
Protect yourself from predatory lenders by looking for warning signs.

Some lenders impose unfair and abusive terms on borrowers through deception and coercion. Watch out for interest rates that are significantly higher than competitors’ rates, or fees that are more than five percent of the loan value. Make sure the lender discloses the annual percentage rate and full payment schedule. A lender should never ask you to lie on paperwork or leave signature boxes blank.

Don’t get pressured into taking a loan. Survey competing offers and consider speaking with a financial planner, accountant, or attorney before signing for your next loan.

Small Business Administration investment programs

Small Business Investment Company (SBIC)

SBICs are privately owned and managed investment funds licensed and regulated by the Small Business Administration. They use their own capital, plus funds borrowed with an SBA guarantee, to make equity and debt investments in qualifying small businesses. Learn more about SBICs to see if your business might qualify.

Small Business Innovation Research (SBIR) program

This program encourages small businesses to engage in federal research and development that has the potential for commercialization. Find out if the SBIR’s competitive awards-based program makes sense for you.

Small Business Technology Transfer (STTR) program

This program offers funding opportunities in the federal innovation research and development arena. Small businesses who qualify for this program work with nonprofit research institutions in the early and intermediate stages of starting up. Find out if the STTR program makes sense for your business.