6 best ways to fund your business startup costs

Some types of small businesses, like freelance writing or web design, can be started with little more than a laptop. Other small businesses require materials, supplies, advertising, physical and/or digital storefronts—in short, startup costs.

How do you fund those business startup costs? Many small business owners cover their business costs out-of-pocket, at least during the initial phases. However, that’s not always sustainable long-term, nor is it necessarily the best method of covering business costs during a growth spurt. Plus, as small business owners quickly learn, keeping their business finances separate from their personal finances is a smart move.

With that in mind, here are some of the best ways to fund your business startup costs. Consider one of these options the next time your small business needs a little extra cash.

Business credit cards

One of the quickest—and often the easiest—ways of funding your small business is through business credit cards. The best credit cards for startups offer small-business owners the flexibility they need to make large purchases on behalf of their business and pay those purchases off once their cash flow catches up. 

Every small business owner should open up a business credit card. It’s an excellent way to earn rewards on your day-to-day business spending, as well as cover more significant business expenses. Many small business credit cards offer a 0% intro APR period, during which you can carry a balance interest-free—which is a great way to fund a large business purchase, because you can pay it off in installments without paying interest (as long as you pay off the entire balance before the 0% intro APR period runs out). 

If you do carry an interest-bearing balance on a business credit card, your interest payments are tax-deductible. This doesn’t mean you should get yourself into more debt than you can handle, of course, but it’s a good piece of information to keep in mind if you ever have to carry a balance for a couple of months.

Small business loans

Small business owners should also take advantage of small business loans—they were designed just for you, after all! Use the U.S. Small Business Administration Lender Match service to find lenders who might be interested in helping you grow your business. Your city or town may also have resources to connect you to local lenders, so check those out as well. In many cases, you can also apply for a small business loan through your bank.

Small business loans often come with lower interest rates than business credit cards, which make them good options for business owners who know they’ll need to borrow a large amount of money and pay it off over time. However, small business loans may also come with more rules, restrictions, and administrative work—making them more time-consuming than swiping a credit card.

Small business grants

Unlike loans, grants are money that you don’t have to pay back—so if your small business is eligible for a grant, take advantage of it. The U.S. Small Business Administration offers a grant-finding service, and make sure you explore your state and local grant opportunities as well. There are also specific grants for arts organizations, businesses run by women and so on, so take the time to learn which grants might apply to your business.

Like small business loans, small business grants come with their fair share of administrative work, including grant applications and grant reporting. Still, it’s a small price to pay for free money.

Family loans

A lot of small business owners have family support, so if that’s a possibility for you and your family, it’s worth considering. To do this right, you and your family member will want to meet with both a lawyer and a CPA; they’ll help you create appropriate terms for the loan, clarify what happens if you cannot pay off the loan as scheduled and explain how this loan will affect both your and your family member’s taxes.

P2P loans

Peer-to-peer loans, often called P2P loans, are another way to fund small business startup costs. P2P lending sites like Funding Circle and LendingClub match small businesses with investors and set up a loan that’s favorable to both parties. As with other types of small business loans, your business may need to meet certain requirements to be eligible for a P2P loan—but if you’re a good match, P2P loans can help you get money quickly and get back to work.

Crowdfunding

Lastly, don’t forget about crowdfunding. Whether you use Kickstarter, GoFundMe, Patreon, Indiegogo or another online service, crowdfunding is a great way to earn both business funds and business support. Everyone who contributes to your campaign actively wants your business to succeed, and these supporters are likely to continue to help your business down the line (by making purchases, consuming content you’ve created or spreading the word on social media). 

Some types of crowdfunding platforms suggest you provide a reward in exchange for a contribution, with larger contributions earning higher-value rewards. Make sure the rewards you send out aren’t so expensive to produce that they eat up all of the money you’ve earned from the crowdfunding project! Likewise, try to create rewards that don’t take a lot of time to create or ship—because you’ve got a business to run.

The bottom line

If you want to fund your small business startup costs, you have a lot of options. Credit cards, loans, grants and crowdfunding are all excellent ways to help you achieve your small business funding goals. It all depends on how much money you need, how soon you need the money and how fast you think you’ll be able to pay it back. 

If you need a little extra cash to cover a modest business expense, a business credit card may be the best option. If you are looking to borrow a significant amount of money and pay it off over a period of time, a small business loan might be a better choice. Do your research to choose the type of business funding that’s right for you—and your business.

Nicole Dieker

Personal finance writer and and the author of “Frugal and the Beast.”

Nicole lives in Cedar Rapids, Iowa and is actively involved in the local performing arts community.