Best Startup Funding Sources in 2022

Starting a business can be very exciting. Perhaps you just left your day job that you hated, and now you are finally pursuing your dreams of being your own boss. Or maybe you’ve been a self starter your whole life and that you enjoy the challenges that come with being an entrepreneur.

Regardless of your reason for starting a business, one fact that’s hard to overlook is that over 50% of new businesses fail within five years. Lack of funding is often cited as one of the top reasons for failure. Cash is king and is often the life blood of business.

You may have the greatest ideas, but without cash to pay for resources, it can be tough to bring your ideas to the market. The biggest question many entrepreneurs ask is – How do I fund my startup?

The guide below will outline 10 funding options that startups can use to launch or scale your business.

Family & Friends

It’s likely that you already have friends or family members who are very supportive of your idea and want to see you succeed. If you’re lucky enough, they’ll often encourage you to pursue your dreams.

This funding option makes sense if you already have family or friends with a high networth and that they would be willing to invest in your business.  You’ll want to be clear on the terms and have everything documented in writing so that you don’t take their trust for granted. Having all of this in writing will avoid any misunderstandings you may have down the road.

Crowdfunding

By using one of the many crowdfunding platforms available, you can present your product idea through a campaign to the public and ask them to “donate” money to your campaign. If you reach the funding goal you established, you’ll soon have access to the funds for your business.

This funding option is great for startups that are already in operation with revenue coming in. This is great if you need additional capital to test out or launch a new product. 

Here is a list of some popular crowdfunding platforms:

• Kickstarter
• iFundWomen
• Wefunder
• Fundable
• Patreon
• Indigogo
• Republlic
• SeedInvest

It’s important to keep in mind that crowdfunding can take up a lot of time, especially if you need that time to focus on growing your business. Many platforms take a 5-10% fee for the money you raise, and some platforms don’t release the funds if you fail to meet your goals.

Line of Credit

If you have an asset that you can back up as collateral, such as real estate, stocks, bonds or  an automobile, a line of credit may be a great option. With a line of credit, the lender will approve you up to a certain credit limit, and you can draw up to that amount and have those funds deposited directly into your checking account. 

If you are a homeowner and have equity in your home, a Home Equity Line of Credit (HELOC) may be a cost effective funding option. Since it’s backed by an asset, this funding option often comes at a lower interest rate compared to other options listed in this article. And you only pay interest on the amount you draw from the credit line.

If you don’t own a home, you may be eligible for a Secured Line of Credit using another asset such as stocks, bonds or an automobile. You may be eligible for this funding option with your current bank, so make sure to check them out. 

Angel Investors

Angel investors are high net worth individuals who often look for entrepreneurs they can invest in to get their business started. They have an interest in both the business owner as well as the business itself.

Angel investors can often provide valuable advice to the entrepreneurs they invest in, which can pay off massively in the long term. As long as you are OK with giving up equity in the business, angel investors can be a valuable funding resource.

When you approach angel investors, you must have a compelling story that will make them feel comfortable in investing in your startup. You must gain their trust, and make them feel they can get some kind of return on their investment.

You can find angel investors through networking, startup events, social media groups, and through personal introductions. Popular online networking sites include:

• AngelList
• SeedInvest
• Tech Coast Angels
• Funded
• Golden Seeds

One thing to keep in mind is that while the money is debt-free, you are giving up a stake in your business so make sure you are OK with this. 

Small Business Credit Cards

If you have good personal credit, you’ll likely qualify for a small business credit card. Typically, many lenders will approve you for a card with at least a 680 FICO score. The great thing about these cards is that many lenders offer an introductory 0% interest for up to 18 months. This can save you on interest expenses while you are growing your business.

The great thing is that you can get approved for these business credit cards even if your startup is not generating any revenue or has no business credit history. You must give a personal guarantee to get approved.This means that if you default on your payments, the lender can come after your assets which can also hurt your personal credit.

Many of the major banks issue business 0% interest credit cards such as Chase, Citi, Bank of America, American Express, US Bank, and Wells Fargo. 

Personal Loans

You can take out a personal loan and use it for a variety of purposes, including investing it into your own business. You’ll increase your chances of getting approved for a loan with a 650 FICO score and at least $40,000 in personal income. Lenders want to make sure you have good borrowing history and enough income to make your monthly payments.

You can get a personal loan either through a traditional bank or a Peer2Peer (P2P) platform. Wells Fargo and Discover offer personal loans to creditworthy borrowers. 

P2P platforms work differently because funding is sourced from a number of investors online. The borrower sign ups through the platform and indicates their loan requirements. Investors get to see the borrowers’ profiles and decide who they want to invest in. 

Some P2P platforms may approve your for a loan with bad credit but it often comes with less favorable terms such as higher interest rate and shorter payback period. Popular platforms include Prosper, Lending Club, and Funding Circle.

Business Incubators & Accelerators

If you’re an early stage business, you can consider Incubator and Accelerator programs as a viable funding option. Typically, these programs can last anywhere between 4-8 months, and they require a significant time commitment from the business owners.

A big advantage of being part of the programs is the networking opportunities, where you will connect with mentors, investors and other startup founders. Popular programs include Y Combinator, TechStars, DreamIt Ventures, AngelPad and Kicklabs. 

SBA Loan

Many SBA-backed lenders require at least two years in business and profitable tax returns. This requirement makes it difficult for startups to obtain SBA funding. However, there are two SBA loans available for startups: Microloans and Community Advantage Program.

The SBA Microloan program offers small amounts of capital between $500 to $50,000 with interest rates anywhere between 8-13%. Each lender has their specific underwriting requirement, but the maximum term is six years.

An SBA Microloan can be used for a number of business purposes, including working capital, inventory, equipment and more.

The SBA Community Advantage program is geared towards startup founders who operate within underserved communities. The loans are issued by community-based lenders who have experience helping small businesses in these communities. These loans can range anywhere between $50,000 to $250,000 with 7-10 year terms. 

Venture Capital 

Venture capitalists manage funds that invest in companies with huge potential for a large exit. In exchange for giving the money debt-free, they take business equity, and they exit when the company goes through an IPO or acquisition.

This type of funding is best suited for startups that are already generating revenue with some kind of exit strategy in place. Typically, the funding amount is in the millions of dollars, and can be used to grow the company rapidly. Startups must have a business plan with strong financial projections. 

The downside is that most venture capitalists expect to recover their investment within 3-5 years. If you expect your product to take longer than that to get to market, this type of funding may not suit you.

Although you may give up a lot of control of your business, you’ll have access to high level mentors which could prove to be valuable in the long term. 

Government Grants

There are many grants available for small businesses. Each grant that is offered by the government has its own qualifications and requirements. For example, some grants may only be available for minority owned or women owned businesses. The SBA website is a great resource to start looking for these grants. 

Since these grants are offered for free, you must be careful not to fall victim to scam. Another drawback to grants is that it often requires a lengthy application process, and it may take a long time to get approved and receive funding. 

Conclusion

If you want to take your startup to the next level, it’s important to have access to capital. This allows you to take advantage of market opportunities very fast. 

If you’d like to get prequalified for funding, please visit our partner 7 Figures Funding and fill out the following form. It takes less than 5 minutes and doesn’t require a hard credit pull, so there’s no impact to your credit score.