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Other Ways to Fund Your Business Besides Loans

By Spodek Law Group | February 20, 2024

Other Ways to Fund Your Business Besides Loans

Starting and running a business requires capital. For many entrepreneurs, business loans are often the first place they turn when they need funding. However, loans come with interest and strict repayment schedules that can put pressure on a fledgling business. Fortunately, there are several alternative funding options for those looking to get their business off the ground without taking on debt.

Personal Funds

The most straightforward way to fund a business is using your own money. Whether it’s from savings or assets you cash out, bootstrapping with personal funds allows you to maintain complete ownership and control over your business. Of course, this option is limited by how much capital you have available. Still, many successful companies like Dell, Apple, Microsoft, and FedEx got their start from founders putting up their own money.

Friends and Family

An extension of personal funding is getting loans from friends and family. People close to you may believe in your idea enough to invest a few thousand dollars to help you pursue your business. These loans typically come in the form of convertible debt, where the money functions like a loan until your company gets more funding and can convert that debt into equity shares. The advantage of friends and family funding is that it comes quickly without much paperwork or stringent repayment terms. However, make sure to put any agreements in writing to avoid misunderstandings down the road.


Sites like Kickstarter, Indiegogo, and GoFundMe allow you to raise funds directly from regular people online. Essentially you create a campaign page showcasing your product or service idea, the amount you want to raise, and what backers will get in return (often your actual product once it’s finished). If your campaign resonates with enough people, you can quickly raise thousands or even millions of dollars in funding. Crowdfunding is great for validating your idea, building an early customer base, and generating working capital. Just be sure you can deliver on your promises to backers.

Angel Investors

Angel investors are high net-worth individuals who provide startups with capital in exchange for convertible debt or equity stakes. Many angels are entrepreneurs themselves and like investing in other startups. The amounts invested by angels can range from a few thousand dollars up to a couple hundred thousand. Angels can also provide advice, mentorship, and introductions to other influential people. To find angels, leverage your network and consider angel investor groups like AngelList and regional organizations like Alliance of Angels.

Venture Capital

Like angel investors, venture capital (VC) firms provide startups with funding in exchange for equity. However, VCs tend to invest much larger sums, from hundreds of thousands to tens of millions of dollars. They also often take a more active role like having a seat on your board. VCs look for companies with major growth potential across large addressable markets. If your startup could be the next Uber or Airbnb, then approaching firms like Sequoia Capital, Accel Partners or Andreessen Horowitz could be worthwhile. But VC funding does come with more legal strings attached.

Business Incubators/Accelerators

Incubators and accelerators help startups in their infancy by providing workspace, funding, mentorship and more. To join one, companies go through competitive application processes to get accepted into cohorts. Accelerators like Y Combinator fast-track growth over short timeframes (weeks to months), taking a small equity chunk. Incubators like Canopy Boulder and Grand Central Tech nurture companies over longer periods (years+) for smaller equity stakes or fees. Graduating from top programs can help startups raise their next rounds and come with perks like access to networks of mentors, investors and alumni.


If your business tackles issues tied to economic development, innovation, research or public welfare, you may be eligible for government and non-profit grants. For example, companies focused on clean energy tech or biotech can find grants from organizations like the National Science Foundation (NSF) and the Small Business Innovation Research program (SBIR). These grants do not take equity and often come with favorable terms compared to equity investments or loans. But grant writing can be complex, with low success rates.

Revenue-Based Financing

Revenue-based financing provides capital in exchange for a fixed percentage of your company’s future gross revenues until the money is paid back plus fees. So there are no fixed monthly payments – the amount paid back fluctuates based on how well your business is doing. This form of funding is quick and flexible compared to traditional bank loans. Sites like Lighter Capital and RevUp offer various revenue-based financing options for startups. Amounts usually range from $50-250K.

Credit Cards

While credit cards generally come with high interest rates and personal liability, when used judiciously they can serve as short-term financing for small purchases (under $5K). Business credit cards like the Chase Ink Preferred come with signup bonuses worth hundreds of dollars in cash or points. Cards aimed at startups like Brex do not require personal guarantees. If managed properly, credit cards provide funding flexibility and allow you to build business credit. But beware of relying solely on credit cards for funding over extended periods.

Personal Credit

Along with business credit cards, person credit lines like personal loans or HELOCs (Home Equity Line Of Credit) are other short-term financing options. Online lenders like SoFi or banks and credit unions offer personal loans with fixed payments terms from 2-5 years. And home equity loans allow you to tap available equity in your home. These should be used judiciously as they require personal liability. But they come with predictable payments and interest rates around 5-10% typically.

Retirement Accounts

An unconventional funding source is your retirement accounts like 401(k)’s and IRA’s. The ROLLOVER FOR BUSINESS STARTUPS Act (ROBS) allows you to leverage up to $50K in retirement funds without early withdrawal penalties. Using retirement funds can be risky but provides inexpensive capital. Guidant Financial and Benetrends are firms that specialize in ROBS plans.

Hard Money Loans

Hard money loans are provided by private investors rather than banks, with property or real estate used as collateral. Hard money comes quickly and the qualifications are less strict than traditional bank loans. But hard money is very short term, lasting around 1 year, with high interest rates and origination fees. Still, for those with extensive real estate holdings but limited operating capital, hard money loans allow you to access funds quickly.

Purchase Order Financing

If you have outstanding invoices or purchase orders from creditworthy companies, you can take these to specialized financiers to receive funding right away. This essentially provides you cash advances on invoices you haven’t collected yet, with the financier collecting on those invoices directly. It allows you to fulfill orders without waiting on client payments. This can facilitate growth for companies with long cash conversion cycles. Fundbox and BlueVine specialize in this type of financing.

Strategic Partnerships

Forming strategic partnerships with other companies can provide funding opportunities beyond pure financing. For example, bigger companies may license your technology to integrate with their products. Or they may invest capital directly into your company to fund product development because it benefits their ecosystem. Partnerships also open the door to joint ventures, channel sales deals, and other value-add collaborations. Maintaining an openness to partnerships allows you to leverage other firms’ resources.

Vendor Financing

If you have long-standing relationships with vendors, asking them directly for better payment terms or loans can provide funding. Whether you need to stretch out payments over more extended periods or request inventory financing, vendors have an incentive to keep good customers. Establishing win-win partnerships with vendors you do significant business with already can provide flexible working capital.

Peer-to-Peer Lending

Peer-to-peer lending sites like LendingClub allow you to get personal and business loans funded by regular people looking to earn interest, rather than banks. By opening up the process to peer lenders, the qualifications tend to be more flexible and rates more favorable compared to traditional financial institutions. These loans have set repayment terms (3-5 years usually) backed by personal guarantees from business owners. It provides another option for reasonably priced capital.

Community Development Financial Institutions

Community development financial institutions (CDFIs) provide funding to businesses in disadvantaged and underserved communities to promote economic revitalization. So if your business specifically creates opportunities in low-income or distressed areas, CDFIs can provide grants, loans and investments tailored to your needs. For example, LiftFund is a nonprofit CDFI that finances small businesses in underserved U.S. markets.

Key Takeaways

There are many ways to fund a business beyond traditional bank loans or giving up equity to investors. Some key things to consider when evaluating funding options:

  • Bootstrapping with personal funds allows you to maintain control but has limits
  • Friends/family loans come quickly but put relationships at risk
  • Crowdfunding validates ideas but requires delivery on promises
  • Angels invest smaller amounts for equity
  • VCs invest more but bring more legal oversight
  • Grants provide money you don’t pay back directly
  • Revenue-based financing varies payments based on how your business performs
  • Credit cards serve short-term small purchases but have high interest rates
  • Personal loans/HELOC’s provide reasonably priced capital but require

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