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The Best Ways To Finance Your Budding Business

Victoria Araj7-Minute Read
UPDATED: June 02, 2024


You dream of starting your own small business. The problem? You have no money.

Here’s some good news: Many entrepreneurs launch successful start-ups even if they don’t have thousands of dollars in the bank. They rely on financial help from friends and relatives, business loans or personal loans from lenders, or loans backed by the U.S. Small Business Administration.

Others barter their services in exchange for funding or free marketing or advertising. Others simply start small and aggressively reinvest whatever profits they make to grow their business.

Ready to take the start-up plunge, but in need of funds? We’re here to offer some clear financing tips to help you get rolling on your American dream.

How Do You Finance A New Business?

Robyn Flint understands the challenges people face when starting small businesses. She’s the founding owner of Property Wise, LLC, a real estate rehabilitation company and also writes for

Flint says that entrepreneurs who face a shortage of cash can always turn to private money lenders for loans to start a business. And if that lender is someone you know? All the better.

For instance, Flint says that you can borrow money from a friend or a relative and offer to repay them with a 10% return on investment within 6 to 12 months. This depends on how long you think it will take to pay them back as part of your business start-up funding. This is a far better return than these friends or relatives would receive from letting their dollars sit in a savings account.

And if you prove trustworthiness by repaying your loan on time? These same private lenders might reinvest with you. Maybe they take their 10% return and put it back into your business in the form of a second loan. After another 6 to 12 months, you promise to repay them with another 10% return.

"Using a private money lender may be the answer to your financial questions," Flint says.

What Is The Best Financing Option For Your Business?

Maybe you don’t want to borrow from friends and family members. That’s ok! If you want to finance your small business through a loan, you have several options, some better than others.

The U.S. Small Business Administration is a good place to start. The Association doesn't offer loans directly, but instead works with lenders that originate the loans. These loans often have lower interest rates and better terms because they aren't as risky to lenders. It's also easier for entrepreneurs to qualify for these loans because of this lower risk.

How does that work? The Small Business Administration guarantees these loans, meaning that if you don't pay them back, the administration will. This reduces the risk to lenders, who are then more willing to loan to entrepreneurs.

You’ll have to work to get these loans. You’ll have to show a business plan to lenders and provide copies of documents verifying the money in your savings and checking accounts, other income streams and debt. Lenders will also check your credit to make sure you have a history of paying your bills on time.

If you’re interested in a Small Business Administration-backed loan, visit the administration’s Lender Match site.

You can also take out personal loans from private lenders. You’ll repay a personal loan in monthly installments, with interest. Make sure ahead of time that you can afford the terms.

Since they don’t tend to have collateral attached, personal loans tend to come with higher interest rates than car and mortgage loans. Don’t accept a personal loan if the interest rate leaves you with a monthly payment that blows your budget. Watch out, too, for fees: lenders may also charge an origination fee for processing the loan. Make sure your lender’s fees aren’t too high.

Again, you’ll have to prove that you have enough income to afford your monthly payments. You’ll also need strong credit to qualify for a personal loan at an affordable interest rate.

A more expensive way to fund your business is to charge your expenses on credit cards. This could help you grow your business, but it’s a risky approach. Credit cards come with high interest rates, often 20% or more. If you run up your credit card balances, your debt will grow steadily from month to month. And if your business doesn’t generate enough income, you can easily get overwhelmed with credit card debt.

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Turn To The Crowd

If you'd rather not rely on family members or friends to fund your business – and, let's be honest, this kind of borrowing potentially puts loved ones in a tough spot – you might consider crowdfunding, which is seeking investments in your business from a wide group of possible investors.

Chloe Gawrych, business expert at Salt Lake City, Utah-based, says that sites such as Kickstarter, CircleUp and Fundable all let you show off your products and business online. If people who see it like it, they can donate or invest in your business.

Just remember that crowdfunding requires plenty of work. You can't just set up a Kickstarter page and expect the donations to roll in, Gawrych says.

"Crowdfunding is far from a sure bet," Gawrych says. "It takes some solid marketing on your part. It tends to work best for businesses that have some kind of 'wow' factor to draw people in."

The Power Of Bartering

And then there's bartering. You can exchange a product or service to potential investors in return for their funding. Maybe you're starting a lawncare business. You can offer to provide free landscaping service to an investor for a year if they provide you with a low-interest loan to help you kickstart your company.

You can also offer barter your company’s services free marketing and advertising materials.

"This is the way our ancestors made it work, so it has been proven effective," Flint says.

How Do You Start A Business With No Money?

Sometimes, the type of business you start can make a significant difference if you don't have a lot of money. Consider Axel DeAngelis, the funder of Walnut, California-based NameBounce, an online business name generator.

"If you don't have a lot of cash, it's important to pick a business that can be immediately profitable," DeAngelis says. "The best way to do this is by providing a service and trading your time for money. Even generating $1,000 of profit can be the spark your business needs to grow."

And sometimes you need to start small. Kim Hawkins, owner of Watkinsville, Georgia-based, an online discount wedding and planning supply company, began her business in 2006, when she already held a full-time job.

Watkins started the company by selling wedding-related items on eBay, with the goal being to earn enough part-time income to quit her day job so that she could stay home with her children. Watkins says she invested less than $100 to get her eBay business started. She then reinvested the profits from what she sold into her business.

This slow, affordable approach paid off.

"Very quickly, the business grew into more than a full-time job," Watkins says. "Within two years, my husband was able to quit his day job to help with the business. Today, we have seven employees and we are still growing."

Free business-building tools can help, too. DeAngelis says that entrepreneurs can use free tools to build their company's website or access "forever free" tiers of tools such as lead-generation service MobileMonkey or marketing platform Mailchimp.

One more tip from DeAngelis? He says that it's important to spend more time on marketing than it is on product development.

"An average service marketed well can make more money than a perfect service marketed poorly," he says.

Try Bootstrapping

Starting a business with little to no money? Don't think you're unusual. Carlota Zimmerman, a New York, New York-based career coach who has been featured in the Washington Post, New York Times, CBS MoneyWatch and other publications, says that few entrepreneurs start their businesses with wads of cash lying around.

Instead, they bootstrap.

That means stretching money, taking advantage of resources and not unnecessarily spending.

Instead of renting an office to impress your Facebook friends, Zimmerman advises making your kitchen table the headquarters of your business, at least until you generate enough profit to justify renting outside office space.

When Zimmerman was starting her own business, she set up shop in her small New York City apartment. A client who visited her wasn't impressed. But years later, that same client visited Zimmerman's new, fancier office on Park Avenue, a space Zimmerman took over after years of making do in shabbier, cheaper locations. This time, the client was impressed. But Zimmerman says that those early, unimpressive offices were a key to growing her business without letting unnecessary expenses choke it.

"My client said, 'This is much better. I could have never survived the dump you lived in,'" Zimmerman says. "I thought, 'And that's why you hate your job while I'm my own boss.'"

Zimmerman recommends, too, that entrepreneurs rely on whatever connections and resources they have. You might be able to barter for services from the members of your college's alumni association, for instance. Members of this association might know others who could provide advice or loans for your business.

"Think creatively," Zimmerman says. "If you're not willing to do this, then probably stick with the 9-to-5."

Be Careful With Bookkeeping, And Your Partners

No matter how you fund your budding business, make sure to keep careful track of all your business expenses and revenues.

Chachi Flores, senior manager of e-commerce at Dallas-based bedding company Peacock Alley, says entrepreneurs should make sure to separate their personal finances from their business expenses and revenues. Entrepreneurs typically fund their start-up costs with their own savings or, if they lack those, loans from others.

It's important, then, that they pull these funds into a separate business account for tax and accounting purposes, Flores says. Mixing personal and business dollars into one fund can lead to confusion.

Flores also recommends that entrepreneurs build a core team of trusted advisors. These advisors might provide funding, but they might also offer advice and tips on how to avoid the most common mistakes start-up businesses make.

Entrepreneurs should be careful, too, if they decide to partner up with others to start a business. It can be tempting to partner only with people who can bring cash to the table, especially if you don't have much of your own. But money shouldn't be the only consideration. Flores says that you need to work with partners who will help your business grow with their ideas and work ethic.

"Entrepreneurs should take an immense amount of time and careful consideration as to who they choose to start a business with," Flores says. "Make sure you're both able to bring something to the table without hindering another person's success."

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.