5 Common Funding Sources For Startup Businesses & Growth [2022] (2024)

If you want to be successful in business, it is crucial to determine when, where, and how to obtain the startup funding you need. Whether you need $1,000 or $1 million to start or expand your business, if you can’t raise money, you can’t build the business you want.

Before You Look For Funding

Before you look for funding, you need to create a solid business plan. In addition to explaining your business and your strategy for success, your plan must determine how much money you need and how it will be used.

Also, it’s very important for you to understand the timing of the funding. For example, do you need all the funding now (e.g., to build out a location), or can you receive your funding in stages or “tranches.”

The amount of funding you seek will affect the source of funding you approach. For example, if you require $250,000 in funding, angel investors are more applicable than venture capitalists. If you need $5 million, the opposite is true.

Secure Funding Quickly!

The key to securing funding for your business is having the right business plan.
With Growthink’s Ultimate Business Plan Template you can complete your plan in just hours and secure funding quickly!

What is The Most Common Source of Funding for Entrepreneurs?

Personal financing is the most common funding source for entrepreneurs. This includes using both your personal savings and personal credit cards to initially fund your business. Other key funding sources, as discussed below, include business loans, friends & family, angel investors and venture capitalists.

What are the Different Ways Businesses can Find Start-up Funds?

While I have identified 41 sources of funding for your business, below are the 5 most common.

1. Funding from Personal Savings

Funding from personal savings is the most common type of funding for small businesses. The two issues with this type of funding are 1) how much personal savings you have and 2) how much personal savings are you willing to risk.

In many cases, entrepreneurs and business owners prefer OPM, or “other people’s money.” The four funding sources below are all OPM sources.

2. Business Loans

Debt financing is a fancy way of saying “loan.” Credit unions and banks offer funding that you must repay over time with interest. This can come in the form of a personal loan, a traditional business loan, or different loans based on the type of asset you need to purchase (e.g., for equipment, land, or vehicles).

You must prove to the lender that the likelihood of you paying back the bank loans is high, and meet any requirements they have (e.g., having collateral in some cases). With a bank loan, you do not need to give up equity. However, once again, you will have to pay interest along with the principal.

3. Friends & Family

A big source of funding for entrepreneurs is friends and family. They can provide funding in the form of debt (you must pay it back), equity (they get shares in your company), or even a hybrid (e.g., a royalty whereby they get paid back via a percentage of your sales).

Friends and family are a great source of funding since they generally trust you and are easier to convince than strangers. However, there is the risk of losing their money. And you must consider how your relationship with them might suffer if this happens.

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4. Angel Investors

Angel investors are generally wealthy individuals like friends and family members; you just don’t know them (yet). At present, there are about 250,000 private angel investors in the United States that fund more than 30,000 small businesses each year.

Most of these angel investors are not members of angel groups. Rather they are business owners, executives and/or other successful individuals that have the means and ability to fund deals that are presented to them and which they find interesting.

Networking is a great way to find an angel investor for your business.

5. Venture Capital

Venture capital funding is a suitable option for businesses that are beyond the startup period, as well as those who need a larger amount of venture capital for expansion and increasing market share. Venture capitalists and VC firms are professional investors that are more involved with business management, and they play a significant role in setting milestones, targets, and giving advice on how to ensure greater success.

Venture capitalists invest in new businesses and medium-sized businesses they believe are likely to go public or be sold for massive future business profits. Specifically, they want to fund companies that have the ability to be valued at $100 million or more within five years. They also go through an expensive and lengthy process of deciding on the best business to invest their venture funds. Hence, the application process and approval usually takes several months.

What Are the Three Major Sources of Funding for New Businesses?

The three major sources of funding for new businesses are personal funds, loans and credit, and venture capital. Personal funds involve using one’s own savings or assets to finance the startup. Loans and credit options are sought from banks, credit unions, or online lenders to obtain the necessary capital. For high-growth potential startups, venture capital firms and angel investors can provide funding in exchange for equity. Other funding options like crowdfunding, grants, or government assistance may also be explored based on the specific business and its needs.

The Bottom Line

As you search for the best funding options for your start-up business or to expand your existing business, you will discover that some sources are more complicated and time-consuming while others may offer a very small amount. While the five sources mentioned above are the most common, there are other ways of obtaining the financing you need including government programs including grants, crowdfunding sites, business credit cards, or a line of credit from a bank just to name a few.

Choosing an inappropriate type of funding can lead to unfavorable outcomes such as feuds between the lender and business owner, shift of control, waste of resources and other negative consequences.

With this in mind, you should study the benefits and drawbacks of each financing option and select the ideal one that will help you meet your business goals. With the right sources of money, the sky’s the limit for your business.

Secure Funding Quickly!

The key to securing funding for your business is having the right business plan.
With Growthink’s Ultimate Business Plan Template you can complete your plan in just hours and secure funding quickly!

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5 Common Funding Sources For Startup Businesses & Growth [2022] (2024)

FAQs

5 Common Funding Sources For Startup Businesses & Growth [2022]? ›

Personal or Family Savings. Personal or family savings is the most common source of business startup capital, according to Census Bureau data.

What is the most common source of funding for a startup business? ›

Personal or Family Savings. Personal or family savings is the most common source of business startup capital, according to Census Bureau data.

What is the most common source of funds entrepreneurs use to start their business? ›

Personal investment

Personal investment is usually the first source of funds when starting a business. Using your own money means you won't have to apply for a loan or seek investments from people outside the company, which can take a long time.

What type of funding is best for startups? ›

Venture Capital

Venture capital is funding that's invested in startups and small businesses that are usually high risk, but also have the potential for exponential growth.

Where do most startups get funding? ›

Startups can get funding in different ways, including business loans, personal savings, friends and family, venture capital and startup grants.

Which is the most available funding source for new businesses? ›

Debt and equity are the two major sources of financing. Government grants to finance certain aspects of a business may be an option.

How to find recently funded startups? ›

The very first step for us is to find companies that actually raised funding recently. There are a few platforms that gather this information, like Crunchbase, Apollo & others. In this example, I'll show how it's done with Apollo (because I personally use this tool & this is a real example 🙂).

What are the most common sources of funding? ›

The main sources of funding are retained earnings, debt capital, and equity capital. Companies use retained earnings from business operations to expand or distribute dividends to their shareholders. Businesses raise funds by borrowing debt privately from a bank or by going public (issuing debt securities).

What is the most common source of money for a new entrepreneur? ›

The most common sources of business startup capital include personal savings, family and friends, bank loans, angel investors, venture capital, crowdfunding, small business grants, business incubators and accelerators, self-funding, and revenue financing.

What is the best source of money to start a business? ›

Angel investing and venture capital are probably the two best-known methods of equity financing for startups. Angel investing is generally easier for aspiring entrepreneurs to secure — angel investors tend to be wealthy individuals, not investment firms, who focus on smaller investments.

What is the most common way for entrepreneurs to fund a startup? ›

Bootstrapping. One of the most common ways to get a business up and running is through “bootstrapping.” Basically, you use your own funds to run your business. This money may come from personal savings, low or no interest credit cards, or mortgages and lines of credit on your home.

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