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Funding Your Small Business – What are Your Options?


According to Business Insider, in the US alone, 543,000 new businesses are launched every single month. Sadly, less than half of those companies will still be operating five years later.

The scary truth is that starting out in business is tough. Only the strongest survive. And one of the biggest indicators of future success is how prepared you are going in. Do you have a business plan? Do you have a marketing strategy? Have you drawn up a profit forecast? And, most importantly, do you have the funds needed to invest in getting the business started the RIGHT way?

Fortunately, with cloud technology making basic business admin affordable, many companies need only a small fund to get started. When I started my writing business in 2010, all I needed was a new computer and some kind of system for keeping track of my accounts (Xero, of course!). When my father started out as a builder, he emptied his savings to buy the best tools and a beat-up old ute to get him to jobs. 40 years later, he's building homes for billionaires.

Your needs will vary depending on what type of business you're starting, and how much capital you'll need. But one thing's for certain, you won't accomplish much without funds. In this article, we look at the different funding options for small business owners, and the benefits and risks of each:

Finance from Your Savings

One of the easiest options for financing a business is through your own savings. Of course, this relies on you accumulating substantial savings, which is easier for some than it is for others. If you're truly dedicated to starting your own business, then you need to focus that determination into paring down your spending and socking some money away to get it started.

Many countries, such as the US, will allow you to take a "loan" from your retirement accounts in order to begin a new venture, and you might also have investments and other savings vehicles you can tap into.


  • Without loan payments and interest, you'll be able to reinvest more into growing the business.
  • With the money at hand you can get started immediately, no waiting for funds to be raised.
  • You're able to take risks with your own money you might not be allowed to with the bank's money.


  • As a new business, you probably won't be bringing in any real money for some time. If your family gets into financial difficulty, you may wish you had those savings.
  • If the business fails, you could lose your life savings, although you won't lose your home.
  • If you are the sole breadwinner in your family, you may not bring in the same income as a steady job for some time. Without savings, your family will need to make budget cuts to keep things afloat.
  • Your spouse may be resentful of you using family funds to finance your venture. You will need to make sure he/she's on board before you begin.
  • By simply being able to tap a fund of money, you might be tempted to rush into a business idea without adequate preparation.

Top Tip:

The more you save, the less the risk to your family and your safety net. Check out Mr Money Mustache – a blog about financial independence through badassitry, for some tips on cutting your household budget and socking away a huge stash of cash.

Borrow Against Your House

If you've built up a bit of equity in your home, this is a powerful source of funds you can tap to buy or begin a new venture. Especially in countries like New Zealand where families are heavily geared towards property over investments, this is a very attractive option.


  • You can tap into your own equity without having to empty your family savings.
  • Interest rates are often significantly lower than bank loans for businesses.


  • If you mess things up, the bank might come after your house.
  • I say it again, because it's important, if you mess things up, the bank might come after your house.

Top Tip:

Talk to a mortgage broker or independent advisor before you sign anything to do with your home – there are measures you can take to help prevent the loss of your home if the business goes south, which the bank often won't tell you about.

Get a Loan From Family or Friends

If you don't have enough funds through your own means to get your business off the ground, you might be able to tap into the "bank of Mum & Dad" (Or the bank of Rich Uncle Stuart, or the Bank of Incredibly Generous BFF Karen). Loans from family and friends can help you double the money from your savings to create a cash cushion to get your business off the ground.


  • A loan from family or friends will likely have more favourable terms, greater flexibility and a longer term than a bank loan.
  • Family members who lend money often take an additional interest in their investment. If they have extensive business experience, their advice could prove invaluable.


  • Family members who lend money can meddle in the business more than you'd like. This can cause tension and resentment and impact your relationship.
  • If the business, and the loan, goes pear-shaped, you risk losing the friendship, too! This is why it's so important to get a proper contract drawn up.

Top Tip:

Talk to the friend or family member privately, and don't let it become a matter of public knowledge that you're borrowing money. You don't want others in the family/friends circle to start demanding money as well – keep things between the two parties it concerns.

Take Out a Loan

Of course, if you don't have a rich Mum & Dad, and Uncle Stuart lost his fortune gambling in Reno, then you're going to need to approach the bank for additional funds. Community banks and Credit Unions focus on local investments, including new businesses.

In order to obtain a bank loan, you're going to need to approach the bank with a clear direction; a solid business plan, financial forecasting, market research, and a resume of your experience. You'll also want to wear a tie (or at least, put on some pants).


  • You'll be able to obtain the funds you need without family involvement. (In some families, this is vital for continual family peace).
  • The bank will scrutinize your plans and ideas more carefully than friends or family members, meaning you will have a more solid plan going in to a new business, and will be less likely to fail.


  • Taking out a loan for any reasons is a risk. If something happens in the future and you can't pay back the money, the bank won't be as forgiving as a friend or family member.
  • When you take out a loan, you lock yourself into a monthly payment. With your company just beginning, those monthly payments can really constrain cashflow and prevent your business from growing.

Top Tip:

If you've never given a formal presentation like this, or created a business plan before, it pays to hire someone to help you create your pitch and hone your plan before you approach the bank. They can also help you negotiate with the bank for better loan terms.

Use a Credit Card

It's not uncommon for business owners to raise the funds they need through one or more credit cards, especially if more conventional methods are not open to them.

If you need funds quickly, credit can enable you to jump on an opportunity or take advantage of a cheap deal on plant or equipment. There are even business credit cards designed to help small business owners manage cashflow, although these might not have the lowest rate. Many business owners will begin using credit cards and then, once the business is established, borrow money from a bank or family to get rid of that high-interest debt.


  • Credit Cards can be obtained quickly and will provide you an easy means of cash.
  • Your credit cards may have a longer period of interest-free borrowing – many are up to 55 days if the balance is paid off in full, enabling you to borrow money interest free for a quick investment.


  • Founding a business on credit cards can impact your personal credit rating (especially if things are shaking)
  • Interest on credit cards is much higher than other types of loans.
  • By obtaining credit so quickly and easily, you might not have spent as much time as you should formulating a solid business plan, meaning you are more likely to fail.

Top Tip:

Many businesses are savvy with credit cards, using them for monthly expenses to obtain cashback points or air miles.

Find Investors


Securing investors isn't for everyone, but if you've got a great idea and the potential to grow, raising capital will help you get off the ground with less risk to your own finances. You don't have to be in Silicon Valley to get some investors on board; look to local venture capital firms and angel investors.

Usually, investors are looking for a solid idea and business plan from a company that plans to go public. In exchange for their investment, they will take over ownership of part of your company.

Angel investors are a certain type of investor – they are individuals who invest their own personal capital into a company in exchange for equity. Angel investing is popular in tech circles and usually occurs during the seeding stage of a company, before venture capital funds would be interested. Angel investors often come from a business background and take an active interest in the company.


  • You get an influx of capital without risking your own assets.
  • This capital is often given in order to grow a company, enabling you to scale faster than you could simply from your own means.
  • With angel investors in particular, you often don't just get an influx of capital, you get to pick the brains of successful, wealthy businesspeople who have an interest in seeing your company succeed.
  • Angel investors also have powerful rolodexes, and can be valuable assets not just for the funds they contribute, but the contacts they bring in.


  • If you get the wrong angel investor on board, they can attempt to shanghai your company with their own ideas. Make sure you vet angel investors and look for those that are a good fit.
  • If you fail, you don't just lose your own money, but other people's. Usually, people don't like it when you lose their money. Things get ugly.

Top Tip:

Securing investors depends on a number of factors, but chief among them is getting your company in front of the right people. You've got to be a savvy networker – reach out to individuals who you think are a good fit and don't be afraid to butter them up!

Crowdfund Your New Company

Crowdfunding for businesses is becoming increasingly more common, as more and more countries allow this type of investment. In a crowdfunding scenario, individuals who might not normally have the funds, will invest a small amount in a start-up company. For example, 1,000 investors might by 10 shares each, raising a total of $10,000 for a new company.

In 2014, both Australia and New Zealand altered legislation to allow crowdfunding of businesses, and each country has seen a new crowdfunding company (VentureCrowd in Aussie, Snowball Effect in New Zealand) take off. New Zealand's first crowdfunded company was, surprisingly or not, a craft brewery. Could your company be next?


  • Crowdfunding enables you to tap into the resources of your supporters to grow a project. It's great for companies that have already developed a strong product/service and are ready to move to the next level.
  • Crowdfunding enables you to test a product on the market before you begin production.
  • Since crowdfunding is new, the novelty of it will often give your business an extra push in the media right when you're starting out and need it most.
  • With some crowdfunding platforms, such as Kickstarter, investors are not shareholders in your company, meaning you retain total control.


  • Crowdfunding for business is relatively new, and many countries haven't yet worked out the kinks in their regulations yet. You could find the market, or the law, quickly changes around you.
  • Crowdfunding is risky for investors, too, which means it's also risky for your reputation. If you fail to meet your crowdfunding goals, that information is public and presented on the internet for anyone to comment on.
  • There is a risk your crowdfunding campaign will be unsuccessful, and you will have to find alternative funding.

Top Tip:

The most important ingredients for a successful crowdfunding scheme are a cleverly constructed proposition. Take the time to perfect your pitch and ensure your investors are getting something special for their money.

Get a Microloan

Microloans are a relatively new form of finance available to business owners. A microloan is a very small, short-term loan enabling a company to get started quickly. Usually a microloan will be less than $35,000.

There are now more than 1,000 microloan companies in the US alone, including TrustLeaf.com, a crowdfunding platform that only accepts funds from the family and friends of an applicant. Online payment processor Paypal also has a microloan platform - PayPal Working Capital - offering loans of $5,000-60,000 for selected businesses.

Microloan companies like Kiwa have been very successful in allowing entrepreneurs in developing countries to start their own companies.


  • If you only need a small injection of capital, a microloan is the perfect solution.
  • Microloans often seek out local, independent, eco-friendly businesses to support.
  • Payment plans are often flexible and easy to manage.


  • Microloans often have a very short term, often as little as three months. If you don't pay back the money by the end of the term, you might be in serious trouble.
  • Microloans often have a strict set of criteria, and not all businesses will be eligible.

Top Tip:

A solid business plan – even if the microloan company does not require one – will help you ensure you're asking for the right amount of money, and that you spend your newfound capital where it's needed most.

As you can see, there are numerous ways to raise money for your business, and every single method carries associated risks and benefits. Starting a company – any company – is a risky endeavour, and it's up to you to fund it in a way that works for you. With a solid, guaranteed pool of cash behind you, just imagine what your company could do!

How did you fund your company? What methods are you looking into right now?

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Steff Green
Steff Green is one of WorkflowMax's resident wordsmiths, writing everything from website pages to blog posts, ebooks, emails and everything in between. Steff is also an award-winning author, with several fantasy novels available on Amazon. When she’s not writing up a storm, Steff lives on a lifestyle block with her musician husband, two cantankerous cats, several sheep and chickens and her medieval sword collection.

Steff Green

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