10 Best Startup Funding Sources In 2022

One of the most important aspects of launching a new business is beginning with enough capital. Startup capital is the money required to launch your business for the first time — but most people don't have the thousands or tens of thousands of dollars required to do it.

How can you find the financial resources required to start the business of your dreams? We have compiled a list of the 10 best solutions in 2022 for your startup funding needs. From crowdfunding to business loans — and everything in between — these are the best sources to find the capital you need to start (or grow) your business.

In This Article:

• Crowdfunding
• Small Business Grants
• Family and Friends
• Angel Investors
• Venture Capital
• Personal Loans for Business
• SBA Microloans
• Business Term Loans or Lines of Credit
• Invoice Financing
• Equipment Financing

1. Crowdfunding

Crowdfunding is exactly what it sounds like — generating funds from a crowd. It's a great way to get the name of your business out into the public and let everyone know that you are in need of capital. There are over 600 crowdfunding platforms on the internet right now. Some of the most well-known are GoFundMe, Fundable, and Patreon.

These platforms make it easy for small businesses and entrepreneurs to begin raising initial capital or fund a project. Every platform has its own terms so it is essential to research and find the best one for your needs.

There are some drawbacks to crowdfunding. The first major drawback is that they are time-consuming. Not only do you need to create the campaign, you need to market your campaign pretty heavily to attract enough attention.

Then, you need to either hand out rewards, recognition, or equity to your donors — called equity crowdfunding. Taxes will likely need to be paid since they will be considered taxable income or charitable donations.

Also, most crowdfunding campaigns fall short. A recent study concluded that from 2014 to June 2021, only 23.3% of projects were fully funded. That being said, depending on your financial needs, a crowdfunding campaign may be what enables you to raise money to start your business or fund a project.

2. Small Business Grants

The obvious advantage to grant money is that there are generally no strings attached. You don't need to pay it back with interest — as you would with loans — and you don't need to deal out portions of your company like you would with venture capital.

Small business grants may be hard to find, depending on where you are located and the industry of your business. The good news is, there is generally some kind of grant out there for everyone. We have an ultimate guide to small business grants that we keep updated to make your search easier.

📌 Pro tip: Be the first to hear about new and upcoming grant programs by joining Skip. We post new grants and loans twice a week on our app for our members, before announcing them to the public.

3. Family and Friends

In addition to crowdfunding and seeking out grants, raising startup capital from family and friends can be a great way to start. One of the positive aspects of gathering funds from those close to you is that they will likely help you market your business by word of mouth. People share more about things they are invested in.

If you do decide to ask family and friends, it's best to approach those who have a business background or those who have faith that you will succeed. Remember, the biggest repercussion of family and friends loans comes if you can't pay back their investment — your relationship can suffer greatly.

4. Angel Investors

If you are unfamiliar with the term, an angel investor is simply a person who invests money. These folks are high-net-worth individuals who invest in startups or new companies in exchange for equity in the business. Angel investors are typically easier to work with in the early stages of your business than other investment or venture capital firms.

While it is a good idea to pitch your idea to several angel investors, keep in mind that many will invest in industries that they are familiar with. That's not always the case, but oftentimes it is. One place to start looking for angel investors is the Angel Capital Association.

5. Venture Capital

Another approach to funding your startup without taking some sort of loan is through venture capital. You've probably heard the term thrown around before, but what does it mean? Venture Capitalists are investors who typically invest significant amounts of money in businesses, for the sole purpose of expediting the company's growth and increasing profits.

Venture capital is another form of equity financing — they give you a large amount of money in exchange for a big piece of the pie (think Shark Tank). Venture capitalists are usually very picky in whom they invest because they look for a 10x return or more on their investment. If you are an entrepreneur starting your very first business, then venture capital is likely not your best option.

6. Personal Loans for Business

A personal loan for business is a loan that an individual takes out for the purpose of funding their business expenses. It's a useful tool for individuals and entrepreneurs who don't have business credit — or a track record — to secure investments from angel investors, or other sources. Generally speaking, one needs a good credit score, e.g. above 670, to pursue personal loan opportunities.

Personal loans are typically easier to qualify for than business loans, can have lower interest rates than business loans, and collateral is often not required. That being said, you will not get as much capital with a personal loan, and if the business doesn't work out and you cannot repay the loan, your personal credit score is affected.

7. SBA Microloans

The Small Business Administration (SBA) Microloan process is designed to assist underserved communities. The SBA awards PRIME Loans to nonprofits or organizations (referred to as intermediaries) at discounted rates, that assist micro-entrepreneurs. These intermediaries then offer loans to entrepreneurs in their communities. Their aim is to assist low-income, urban, rural, or tribal communities, but anyone can apply.

Finding a microloan intermediary in your area may be a great way to get the funding you need. These microloans are usually capped at $50,000, but each location will have specific limitations and requirements. Microloans can be used for a variety of business purposes including, purchasing inventory or machinery, improving the condition of the business (i.e. new furniture, building updates, etc.), or for working capital.

8. Business Term Loans or Lines of Credit

Most people are familiar with business loans. You apply for a certain loan amount at a specific interest rate and APR, which is deposited into your bank account. You make the same monthly payment until the loan is paid off. These can be beneficial because you get the money all at once — but you start paying interest on the total value of the loan right away.

An alternative to a business loan is a business line of credit. With a line of credit, businesses are only charged interest on the amount that they use at any given time. If you are approved for a $50K line of credit but only use $20K, you only pay interest on the $20K.

One drawback to business lines of credit is that many lenders want some kind of business history before they lend. In other words, a line of credit is likely not going to provide you with the initial seed capital to launch your business. However, it can be a means of additional financing six months or so into your business, if your initial seed capital begins to run short.

9. Invoice Financing

Invoice financing, also referred to as accounts receivable financing, is a form of financing where businesses receive an advance on their unpaid invoices. Typically, lenders will lend you up to 80% or 85% of the total of your invoices. When you are paid, they get the amount they lent to you, along with their fee, and you receive the rest of the invoice balance.

Invoice financing is typically easier to qualify for than other lending options because the invoices themselves serve as collateral. It alleviates issues that arise from unpaid customer balances and keeps cash flowing. This is a great option for B2C or B2B businesses.

Similar to a business line of credit, this option is available once a company launches and has invoices. Some companies do not require businesses to be established for very long in order to qualify, some only require as little as three months in business.

10. Equipment Financing

Almost every business needs some kind of equipment, whether it be office equipment, electronic devices, or kitchen supplies. Like invoice financing, these loans are easier to qualify for because the equipment is the collateral. Institutions will often lend up to 100% of the equipment value. The loan is then paid back with interest over a determined period of time.

One of the added benefits of equipment financing is that they loan to new businesses. Unlike business lines of credit or business loans, many institutions will lend to businesses that are just starting up. It's a great way to get your business up and running with the equipment you need, even when your business is brand new.

The Best Startup Source for Your Business

Here are some questions to ask yourself when considering your options:

• Do I know people that could invest in my company?
• How much money do I need?
• Am I willing to give up equity in exchange for seed capital?
• What is my personal credit score?
• What grants are available to me?
• What equipment do I need?

At the end of the day, you know your business best. Your seed capital may come through more than one option. You may start with crowdfunding or an angel investor and then turn to a business line of credit to keep afloat through the first 12-18 months. No matter which source you pursue, being able to sell your business plan is critical.

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