Money is not the only thing a new business needs, but many founders need some. Knowing your options and how each one works makes it easier to choose well and to avoid expensive mistakes. This article is general information, not financial or legal advice.
Start by asking how much you really need
Many businesses can start small. Before you look for funding, list what you must buy to make your first sale and what you can delay. Borrowing less is easier to manage than borrowing more. Our guide to financial basics for new founders explains how to estimate startup costs and your break-even point.
Common sources
- Your own savings and sales. Growing from revenue keeps you in control.
- Friends and family. If you accept help, put the terms in writing so everyone understands what was agreed.
- Microloans and community lenders. Nonprofit lenders and community development financial institutions often work with new and small businesses.
- Bank loans. Banks usually want to see a plan, realistic numbers, and some evidence of demand.
- Grants and competitions. These can help but are competitive and have strict rules and deadlines.
- Rural programs. Some federal programs are designed for businesses outside larger cities.
SBA microloans
The SBA microloan program offers loans of up to $50,000 to help small businesses start up and expand, and the average loan is about $13,000. The money comes through specially designated intermediary lenders, which are nonprofit, community-based organizations with experience in lending and in management and technical assistance. Proceeds cannot be used to pay existing debts or to purchase real estate. Lenders can differ in their requirements and terms, so it is worth asking more than one.
USDA support for rural businesses
The USDA Rural Development Business and Industry Guaranteed Loan program aims to improve access to capital in rural communities by guaranteeing loans made by commercial lenders. Eligible projects are in rural areas that are not part of a city or town with more than 50,000 residents. A borrower’s headquarters can be in a larger city as long as the project itself is in an eligible rural area. Because the guarantee backs a lender’s loan, your first step is usually to talk to a bank or other lender that takes part in the program. Eligibility rules and uses of funds are detailed and change over time, so read the current program page and ask your lender.
Grants: read the fine print
Grants do not have to be repaid, which makes them attractive, but they are competitive and usually tied to a specific purpose, place, or type of applicant. Before you spend time on an application, check who is eligible, what the money can be used for, when it is due, and whether the application is actually open. Do not assume a grant is available to an individual just because a website says “free money.”
Watch for scams
Be careful with anyone who asks for an upfront fee to guarantee a grant or a loan. The FTC warns that no government agency will ever contact you to demand that you pay to get a grant, and that the only place to find a list of all available federal grants is the free site Grants.gov. Do not share your Social Security number or bank account details with someone who contacts you unexpectedly.
Get ready before you apply
Lenders and funders usually want to see a clear plan, realistic numbers, and evidence that customers want what you offer. Bring your one-page business plan, your cost and break-even estimates, and any early sales or letters of interest from customers.
Know your credit basics
Check your personal credit report for mistakes and pay down what you can. For a new business, lenders often look closely at the owner’s credit history.
Talk to an advisor first
A local Small Business Development Center can review your plan and help you compare options that fit your situation. Comparing a few lenders and asking about interest rates, fees, repayment terms, and collateral before you sign will protect you more than any single tip.