{"id":5511,"date":"2016-04-04T10:48:00","date_gmt":"2016-04-04T15:48:00","guid":{"rendered":"https:\/\/ability-fl-prod.internetbrands.com\/ability-law\/smallbusiness\/starting-a-business\/sources-of-small-business-financing.html"},"modified":"2026-05-11T00:33:00","modified_gmt":"2026-05-11T05:33:00","slug":"sources-of-small-business-financing","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/sources-of-small-business-financing.html","title":{"rendered":"Sources of Small Business Financing"},"content":{"rendered":"\n
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Sources of Small Business Financing<\/h1>\n\n
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\n By Amber Sheppard, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

Financing for your small business involves acquiring funds to support your company’s business needs. Common financing sources include equity and debt options, SBA loans, bank loans, venture capital, and crowdfunding. Each source offers distinct benefits and risks. Find out what is the best fit for your startup.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

You\u2019ve finally decided to\u00a0start your dream business<\/a>. With a compelling vision, a\u00a0solid business plan<\/span><\/a>, and a supportive network of friends and family, your potential is limitless. This article focuses on the\u00a0different sources of financing<\/span><\/a>\u00a0from lenders<\/span> to credit cards<\/span>.<\/p>\n

We make business formation EASY.\u00a0<\/em><\/strong>Learn about our DIY business formation services here<\/em><\/strong><\/a>.<\/em><\/strong><\/p>\n

Equity vs. Debt Financing<\/span><\/h2>\n

Equity financing<\/span> or debt financing<\/span><\/a>\u00a0are common ways entrepreneurs<\/span> get money for their small businesses. Equity financing<\/span> means you\u00a0sell stock<\/a>\u00a0in your company to a buyer with an ownership interest. Debt financing<\/span> is a loan. You are\u00a0in debt to the lender<\/span><\/a>\u00a0and owe that person, business, or bank the amount you borrowed.<\/p>\n

Common Financing Sources<\/strong><\/h2>\n

Here are common equity and debt financing<\/span> sources for small businesses that range from bank loans<\/span> to credit cards<\/span>.<\/p>\n

Yourself<\/strong><\/h3>\n

Many startups<\/span> find financing from their owners by using savings or cashing out 401Ks. A home equity line of credit<\/span> or selling personal assets are other ways to finance your business. Borrowing against your bonds, mutual funds, real estate<\/span>, or stocks is another option. The money you contribute is equity, or you can create a personal loan to the business.<\/p>\n

Family and Friends<\/strong><\/h3>\n

Your family, relatives, and friends mayoffer financing options<\/span> for your small business. They can\u00a0lend you money<\/a>, or ask for an equity stake in your company.<\/p>\n

Small Business Administration<\/span><\/strong><\/h3>\n

The\u00a0Small Business Administration<\/span><\/a>\u00a0(SBA<\/span>) offers several loan programs to small businesses. Its\u00a07(a) Loan Guaranty Program<\/a>\u00a0provides loans to small businesses that cannot obtain financing from traditional banks<\/span>.<\/p>\n

Banks<\/strong><\/h3>\n

Many business owners<\/span> receive\u00a0loans from banks<\/a>. However, banks are usually the most challenging place for a startup<\/span> business<\/span> to find money because banks like to see a company\u2019s history of making money. They want to be sure that your company will be able to repay the loan. A good business plan<\/span> and available personal assets as collateral may entice a bank to offer you a loan.<\/p>\n

Credit Cards<\/span><\/strong><\/h3>\n

An often overlooked startup<\/span> financing option<\/span> is through your existing credit card<\/span>. Most credit cards<\/span> also offer a built-in line of credit<\/span>. The interest rates<\/span> are typically much higher than a traditional bank<\/span> or SBA<\/span> loan<\/span>.<\/p>\n

Leasing Companies<\/strong><\/h3>\n

Leasing companies can lease your startup<\/span> equipment such as computers, phone systems, and vehicles. Leasing lowers startup<\/span> costs because you do not pay the full amount upfront.<\/p>\n

Customers<\/strong><\/h3>\n

You can ask for an advance from customers to pay for their products or services in full, so you have money to purchase products or inventory before the sale.<\/p>\n

Trade Credit<\/strong><\/h3>\n

You can request a trade credit from vendors and suppliers, who may sell to you on credit based on your reputation or credit score<\/span>. This is an excellent source of financing<\/span> for both startup<\/span> companies<\/span> and growing businesses.<\/p>\n

Small Business Investment Centers<\/strong><\/h3>\n

The SBA<\/span> licenses and regulates Small Business Investment Centers (SBICs) which are owned by private investment and management firms. The SBICs provide small businesses with venture capital<\/span> and startup<\/span> financing.<\/p>\n

Venture Capital<\/span> Firms<\/strong><\/h3>\n

Venture capitalists<\/span>, sometimes called angel investors<\/span>, provide funds to companies they believe have exceptional growth potential. Very few small businesses can obtain funding through\u00a0venture capital<\/span> firms<\/a>.<\/p>\n

Investment Banking Firms<\/strong><\/h3>\n

Investment bankers \u201ctake companies public.\u201d That means that the\u00a0investment banker<\/a>\u00a0offers your company stock (an ownership interest) to the public. This option is generally only available to small businesses with a strong growth history and growth potential.<\/p>\n

Private Placement<\/strong><\/h3>\n

A\u00a0private placement<\/a>\u00a0is an offer of stock (the stock gives the buyer an ownership interest in your company) or debt (you owe the holder of the debt instrument, much like a loan) to wealthy individuals or venture capitalists<\/span> without going public.<\/p>\n

Crowdfunding<\/span><\/strong><\/h3>\n

Financing is available through crowdfunding<\/span>, where you offer equity in exchange for funds. Be careful if you decide to crowdfund<\/span>, as there are\u00a0many rules and restrictions<\/a>\u00a0from advertising requirements to regulations on gathering funds.<\/p>\n

Get Legal Help With Your Business Financing<\/span> Efforts<\/h2>\n

Now that you have a grasp of the financing basics, it\u2019s crucial to determine what funding option is best for your unique situation. Reach out to a\u00a0small business attorney<\/a>\u00a0today to discuss the pros and cons of your options.<\/p>\n

Looking to start your own business<\/span>?\u00a0Set up your business entity<\/a>\u00a0in minutes.<\/p><\/div>\n\n\n

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