Two people sit at a desk and discuss small business funding options.

How to get funding to start your small business

Tuesday, August 15, 2023

So you want to start a business — but you need some extra capital to do it.

Good news: These days, entrepreneurs have plenty of options for accessing the small business funding they need to turn a potential business idea into a full-scale operation.

From bank loans and grants to crowdfunding and capital lending, there's a solution for every type of business looking to make their mark.

The world we live in is an expensive one. That’s why funding is an important part of business development. It enables you to access money to obtain quick results instead of having to wait years to save up enough to make your dreams happen.

For many small business owners, operational necessities and startup costs such as specific equipment, inventory and real estate are needed right away — the business can't earn revenue without them in place from the start. Small business funding puts you on the fast track to purchase what you need for your startup, so you can begin serving your customers and turning a profit out of the gate.

To learn how to navigate small business funding like a pro and ensure you make the best decision for your business, follow our guide covering:

Ready to get the funding you need to grow your business with confidence? Let’s go!

Understanding your funding needs

The first step in pursuing any type of small business funding solution is to understand what you actually need startup funding for and how those funds will help you achieve your goals. Here are a few tips for creating an accurate picture of your business' financial status prior to exploring loan options:

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Estimate your one-time and recurring expenses for starting or running your business

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Estimate your available funds, such as personal investment, revenue or savings

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Compare your expenses and resources to determine your funding gap

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Organize your financial data, including revenue, expenses, invoices and payments

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Create and update your financial statements, including income statements, balance sheets and cash flow statements

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Analyze and interpret your financial statements to evaluate your profitability, liquidity, solvency, efficiency and growth

We know what you’re thinking — that seems like a lot of paperwork and number crunching. But while it’s probably not your idea of a good time, doing the work upfront to get a solid read on your finances is worth it.

Once you understand the gap between what you have and what you need, you can begin crafting a business plan. A detailed business plan is a great way to define your goals, strategies and actions for your business — and make the lending process a whole lot easier. A well-written plan should identify and quantify your financial needs and communicate your value proposition and competitive advantage to potential lenders and investors. Your business plan is also a great tool to measure your progress and financial performance over time.

Types of small business funding options

So, you know how much startup funding you need, why you need it and how you plan to use it thanks to your business plan. Now it’s time to learn about the different funding options available, so you have all the information you need to choose the best one for your business.

We’ll go into more depth about each of these options in a second, but here’s a quick overview of the main types of funding to get us started:

Traditional bank loans

Provided with repayment terms and interest rates set by the bank, typically used for substantial business investments like property or equipment

Microloans

Small, short-term loans offered by specialized lenders, often designed to support startups and businesses in underserved communities

Crowdfunding

Involves raising small amounts of money from a large number of people (typically via online platforms) and can be donation-based, reward-based or equity-based

Angel investors

Wealthy individuals who provide capital for a business startup, usually in exchange for convertible debt or ownership equity

Venture capital

A type of equity financing that firms provide to startups and small businesses with long-term growth potential, often in exchange for a share of ownership

Government grants

Non-repayable funds provided by governmental bodies to support businesses in certain industries or areas, usually tied to specific objectives

Small Business Administration (SBA) loans

Government-guaranteed loans that help small businesses get started or expand, with lower rates and longer repayment terms

Bootstrapping

Starting or growing a business using personal funds or the company's own revenue, avoiding outside investment or loans

Heartland Capital lending solutions

Loan options ranging from $5k to $5 million, available from various qualified lenders with terms to suit your unique business needs

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Traditional bank loans

First up, let’s talk about the type of loan you probably grew up learning about. Traditional bank loans can provide your small business with large amounts of money at low interest rates and offer longer repayment terms to suit your specific needs and financial abilities. But don’t let the wool be pulled over your eyes — they also have drawbacks.

For one, the application process can be difficult and time-consuming. The eligibility criteria can also be frustrating to navigate — and you might have to put up collateral in order to get the loan. On top of that, traditional bank loans are known for low approval rates, so there's no guarantee you'll get what you need in the end.

If a loan isn’t feeling right for you, traditional banks also offer business credit cards and business lines of credit. Both provide an avenue to borrow money for your business expenses in their own way. Keep in mind, credit lines and credit cards have different features and purposes. A business credit card is good for everyday one-off expenses like office supplies and travel expenses, whereas a business line of credit is good for larger or recurring expenses, like rent or bills from vendors. A business line of credit usually has higher credit limits, lower interest rates and stricter requirements than a business credit card.

Key takeaway

To increase your chances of getting approved for a traditional bank loan, business line of credit or business credit card, be sure to do the following things: compare different lenders and loan options, check and improve your business credit score, prepare all the required documents and information in advance and clearly explain how you plan to use and repay the loan.

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Microloans

Much like the name suggests, microloans are small loans. But what they lack in size, they make up for in speed. While microloans typically have lower loan amounts, and higher interest rates for some borrowers, they’re easier and faster to get approved for than traditional loans. Microloans can be used for a variety of business purposes, but be on the lookout — some lenders have specific restrictions on how the funds can be spent.

Key takeaway

If you think a microloan might be the right move for you, be sure to compare different lenders and loan options, check and improve your credit score, prepare a detailed and well-written business plan and provide any collateral or guarantee if required.

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Crowdfunding

More of the non-traditional type? Through crowdfunding, you can raise money online for a specific project, cause or idea. There are different types of crowdfunding, such as reward-based, equity-based, debt crowdfunding, donation-based and subscription-based. Each has its own benefits and drawbacks. Let’s break it down:

Benefits Drawbacks

Reward-based crowdfunding

  • Raise money and offer rewards

  • Test the market

  • Build a customer base

  • High costs and risks

  • Pressure to fulfill expectations

  • Deal with taxes and regulations

Equity-based crowdfunding

  • Raise money and offer equity

  • Gain credibility and exposure

  • Benefit from investors

  • Give up control and equity

  • Manage investors

  • Comply with legal and financial requirements

Debt crowdfunding

  • Borrow money and offer repayment

  • Access lower interest rates

  • Faster approval

  • Flexible terms

  • Take on more debt and obligations

  • Risk collateral or guarantee

  • Pay higher interest rates if you have poor credit

Donation-based crowdfunding

  • Raise money and offer nothing

  • Appeal to generosity and altruism

  • Raise awareness and visibility

  • Receive tax deductions

  • Compete with other causes

  • Rely on trust and transparency

  • Deal with fraud or misuse

Subscription-based crowdfunding

  • Raise money and offer content or access

  • Generate a steady income stream

  • Build a loyal fan base

  • Retain creative control

  • Create and deliver content regularly

  • Engage and retain patrons

  • Share revenue with platform

Key takeaway

As you can probably tell, when it comes to crowdfunding, there’s a lot to consider. To choose the right crowdfunding platform for your business’ needs, consider your goals, audience and budget, as well as the platform’s fees, features, reputation and support. Not sure where to start? Some popular platforms include Kickstarter, Indiegogo, SeedInvest, StartEngine, Kiva, LendingClub, GoFundMe, Mightycause and Patreon.

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Angel investors

It’s not too often words like “angel” and “shark tank” can be used to describe the same concept, but with this type of lending, they do. Angel investors are wealthy individuals who invest in early-stage startups in return for an ownership stake — and the most classic example of angel investment is Shark Tank or Dragon's Den. This is where investors help grow new businesses using their capital, expertise and connections in return for a percentage of the company. These types of investors often face high risks and long waits before seeing a return on their investment.

Key takeaway

To get angel investors to bet on you, you’ll need a strong pitch deck that illustrates your team, market, product, business model and traction to date. You’ll also need to research and network with suitable angel investors, answer their questions and negotiate the terms of any deals.

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Venture capital

If angels and sharks aren’t your thing, one alternative is venture capital (VC). It’s a form of business financing that provides funds to high-potential, high-risk startups and growth-stage companies. Venture capitalists are investors who take an equity stake and a degree of control in the companies they fund, allowing them to aid in making decisions that will yield a return. If you’re thinking this sounds similar to angel investors, you’re not wrong. The main difference is that angel investors invest their own personal money, while VCs are firms that control and invest money pooled from groups of investors.

Key takeaway

Thinking this is up your alley? To attract venture capital, your startup needs to have a clear value proposition, a strong team, a unique, scalable product and a viable business model — as well as solid traction and validation.

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Government grants

How does funding you don’t have to pay back or give up control for sound? Government grants are funds the federal government gives to businesses or individuals for specific purposes or projects. (Think of it kind of like a scholarship for businesses.) There are different types of small business grants, such as discretionary, formula, project and block grants. You can apply for government grants by visiting the official website, searching for grant opportunities and submitting your application online.

Eligibility for grants depends on the requirements of each grant program. Some grants are only for certain types of organizations, such as nonprofits, educational institutions or tribal entities, while others may have criteria based on location, population, income or other factors.

Key takeaway

As a small business owner, check out grant options that support the mission and goals of your community, such as the Community Development Block Grant (CDBG) Program, the Social Services Block Grant (SSBG) Program and Arts Endowment Grant Program. These can be found on the official grants.gov website.

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Small Business Administration (SBA) loans

No need for Sherlock Holmes to figure this one out: SBA loans are small business loans guaranteed by the US Small Business Administration. If you’re not familiar, the SBA is a federal agency that helps entrepreneurs across the country start and grow their businesses. SBA loans help entrepreneurs and small business owners with a wide range of business needs, including obtaining working capital to run their businesses, purchasing fixed assets or even implementing disaster recovery efforts.

To qualify for an SBA loan, you need to meet the eligibility criteria of the specific loan program you're applying for. Some of the general requirements include operating a for-profit business in the United States, investing your own time or money into the business, exhausting other financing options and presenting a solid business plan with a sound purpose.

Key takeaway

Planning to apply for an SBA loan? Here’s what to expect: First, you’ll need to find the right loan program and an SBA-approved lender near you. You can skip the goose chase and use the SBA website and the Lender Match tool to do so. Once you’ve found a lender, you’ll need to prepare and submit your loan application along with the required information and documents. The lender will then review your application and decide whether or not to approve it. If your application is approved, the lender will disburse the funds to you. From there, you'll need to start repaying your loan.

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Bootstrapping

At this point, you might be thinking applying for a loan just isn’t right for your business. If that’s you, let us introduce you to bootstrapping: a way of starting or growing a business with little or no money from outside sources. It means you use your own savings, income or resources to run your business or borrow from friends and family to initially fund your startup.

Key takeaway

Bootstrapping comes with advantages like more control, flexibility and creativity. But it also has disadvantages, such as more risk, responsibility and the issue of limited available resources. A word of warning — this option might not be the best move for your business if your personal financial capabilities would be significantly stretched to make it work.

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Heartland Capital lending solutions

Now, all of those options sounded like a lot of work, right? If you were hoping for an easier, less time-consuming way to get a small business loan, we have just the thing: Heartland Capital, powered by Lendio.

Our guided lending experience enables you to access the money you need for your new business in a way that's both fast and simple. We compare 10+ funding types from 80+ capital lenders for you, so you can choose the perfect loan option for your business, whether it’s working capital, equipment financing, term loans, lines of credit, SBA loans or something else.

Heartland Capital is a great option for so many reasons, but here are just a few:

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Quick and easy application process

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Our partner Lendio shops for you

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Large network of lenders

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Funding advisor reviews options with you

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Dedicated support team

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Privacy-first approach

Key takeaway

To apply through Heartland Capital, simply visit our website and fill out the form. You'll then receive loan offers from different lenders and are free to choose the one that suits your needs best. Once approved, you’ll be able to access your funds in as little as 24 hours. Seriously.

Factors impacting small business loans

Now that you understand the different types of small business loan options, it’s important to understand a couple of factors that can impact your loan in a big way.

Understanding interest rates

It’s hard to talk about loans without talking about interest rates. Which is why we’re going to do that right now.

What’s an interest rate again? Interest rates refer to the extra fee you pay lenders (in addition to the actual small business loan amount) for the privilege of borrowing money. Interest rates are usually expressed as a percentage of the amount of money you borrow, and they accrue on an annual basis.

Here’s an example: If you borrow $5,000 at an interest rate of 10% per year, you'll have to pay back $5,500 after one year ($500 in interest and the $5,000 principal amount, since 10% of 5,000 = 500).

Interest rates change depending on certain factors, including:

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The supply and demand of money in the market

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The goals and policies of the government and the central bank

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The currency and the term of the loan in question

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The risk of the borrower not paying back the loan

Rates also vary depending on the type and source of the loan: Fixed interest rates stay the same throughout the loan period, while variable interest rates can change according to market conditions.

The bottom line? A lower interest rate is a good thing, because it means you’ll have to pay less money back to the lender to clear your debt. You can also save money on your existing loans by refinancing them at a lower rate down the road if that option becomes available. Keep that info in your back pocket, but be sure to take the initial interest rate into account before you sign up for a loan.

Understanding your business credit score

Wondering how to get a lower interest rate on your small business loan? Your business credit score plays a key role.

A business credit score is a number that shows how likely a business is to pay back its debts on time — just like your personal credit score shows how likely you are to pay your credit cards or car loans on time. Your business credit score is based on your business’ credit history, which includes how much money it owes, how often it pays its bills and whether it has any legal problems. This score helps lenders, suppliers and customers decide whether to do business with a company or not, so it's extremely important to keep it in good standing.

A business credit score typically ranges from 0 to 100, depending on the scoring model. Generally, the higher the score, the better the creditworthiness of the business. A high business credit score can help you get better terms and lower interest rates when applying for loans or credit cards. On the other hand, a low business credit score makes it harder or more expensive to get financing or credit.

You can check your business credit score by accessing a business credit report from one of the three major business credit bureaus: Dun & Bradstreet, Experian or Equifax. A business credit report contains detailed information about a business’ credit history and current financial situation, so it's smart to keep an eye on your own business credit score to monitor your business' credit health and improve its credit rating over time.

Three people gathered at a table discuss how to make a loan application attractive to a lender

How to make your business attractive to investors

We wish it wasn’t the case —but just because you believe in your business idea, it doesn't mean investors will automatically line up to fund it. To position your business as an attractive option for investors, you’ll need to assemble a few crucial things. The good news? Doing it right will showcase to investors that you have both the strength to carry out strategic plans and the forethought to identify methods for overcoming obstacles along the way.

Create a strong business plan

We touched on this briefly earlier, but to recap, a business plan is a document that explains your business idea, goals and strategies. It’s also a key piece of the puzzle for your loan application. While it can help you start your business, it can also help you run and grow it. Whether you want to secure funding, reach customers or attract partners, having a strong business plan in place will set you up for success.

Your business plan should do two key things: 1) paint a detailed picture of your business and 2) indicate how you plan to achieve profit. Savvy investors will only consider a business that has a solid business plan with a market analysis and strong financial projections (in addition to other components). If you don't have a business plan already — or if you think your existing plan could use a facelift — make this your first step.

Build a talented team

Next, investors want to know how your business is run and who is responsible for the everyday work that will help you achieve goals and milestones. Hiring top talent to grow your business lets investors know your business — and their investment — is in capable hands. It also demonstrates that you recognize the value of a strong team to building your business’ long-term success.

Seeking out highly experienced individuals who excel in areas where you need assistance shows investors you're reliable and not over-controlling. At the end of the day, business is about people, and character will always come into play in high-risk investment decisions.

Demonstrate market potential

Our last tip for making your loan application competitive? Show investors three key things: 1) how large and attractive your target market is, 2) how well your product or service can meet the needs and wants of your customers and 3) how you plan to stand out from your competitors and capture a significant share of the market.

This nods back to creating a comprehensive business plan, as market research is a big part of planning for financial success. Investors will want to see the demographics and psychographics of your target audience to understand their buying behavior and motivations.

Man in apron sits at table and reviews his business plan before applying for a loan

Common mistakes to avoid when seeking funding

Now that you know what to do to make yourself attractive to lenders, let’s talk about what not to do. Without doing your research in advance, it's possible to fall for some of the mistakes new entrepreneurs often make when starting a new business with outside cash. These mistakes can make it difficult or even impossible to secure small business funding either from investors or financial institutions and can have a negative impact on the business' economic development. Without further ado, here they are:

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1

Not having a clear business plan


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2

Misjudging the amount needed


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3

Overlooking certain funding sources

1. Not having a clear business plan

A business plan that lacks vision and clarity tells investors and banks that you haven't taken the time to consider your business as a serious enterprise. And if you don’t take yourself seriously, why should they? This also indicates to lenders that there will likely be inconsistencies in your projections, frequent obstacles and challenging problems that could prove more risky than the business is worth. For competent investors, this is a major red flag. Be sure to craft a well-rounded business plan that covers all the important points we discussed earlier in detail.

2. Misjudging the amount needed

Remember when we talked about understanding your funding needs at the beginning? Well, we’ve come full circle. Not seeking enough funding tells investors you don't know what your business needs to grow and scale. It could also lead to misuse of funds as you may end up scrambling to cover expenses and taking shortcuts to stay afloat. Instead of putting yourself in that situation, take the time to honestly assess all of the costs involved in starting, running and growing your business — and be upfront about your small business funding needs with lenders.

3. Overlooking certain funding sources

There are a lot of loan options (we went over almost 10 different types earlier!) — and for good reason. Small business needs aren’t “one size fits all,” and loans shouldn’t be either. It's important to consider every funding option available to you before making a final decision. Despite what you may have been led to believe up until now, there’s no one right way. For example, missing out on grants could mean you end up borrowing higher amounts than you need and have to pay more interest in the long run. Explore fundraising strategies that make sense for your business, but don't eliminate your options too quickly.

Ready to work with a partner who knows what it’s like to start a business?

Applying for a small business loan can be a complicated, time-consuming process. But it doesn’t have to be.

With Heartland Capital, you can apply online right now without the hassle:

  • It’s free and only takes 15 minutes

  • With a single application, 80+ capital lenders compete for your business

  • After you get approved, your money gets delivered in as little as 24 hours

Reach out anytime to learn more about how we can help you get funded and unlock growth for your business.

Frequently asked questions (FAQs)

You can ask for funding for your business by preparing a pitch deck, a business plan and a financial projection that showcases your business idea, market potential, competitive advantage and revenue model. Then, you can present your pitch to potential funders such as banks, capital lenders, investors or grant providers. Don’t forget to use online crowdfunding platforms to reach a wider audience of funders.

Most businesses receive funding from a combination of sources such as personal savings, loans, grants, equity financing or crowdfunding. The type and amount of funding a business can get depends on various factors, such as the stage of the business, the creditworthiness of the owner, the industry and market conditions, and the availability and cost of funding.

You can raise money to start a business without a loan by using personal savings or assets, asking friends and family for help, applying for grants, selling your products or services in advance, finding a partner or co-founder who can invest in your business or launching a crowdfunding campaign.

It's possible to get funding with just an idea, but it definitely isn't easy. Most funders will want to see some proof of concept, market validation or revenue traction before they invest in your business. However, you may be able to get funding with just an idea if you have a strong personal network, a compelling pitch or a unique and innovative solution to a large problem.

You can get a business loan without revenue if you have a good personal credit score and credit history, a solid business plan and financial projections, and likely some collateral to put up against the loan. You may also qualify for startup loans or microloans that are designed for new businesses with little or no revenue. But you're likely to face higher interest rates and fees, lower loan amounts and stricter requirements than businesses that already have revenue.

The amount of money you can get from a startup business loan depends on the type of loan, the lender and your qualifications. Heartland offers small business funding from $5,000 to $5 million to make sure your business has what it needs to operate successfully. The application process is fast, free and won't impact your credit score.

Some of the benefits of getting funded include that you can start or grow your business faster, cover your expenses and cash flow gaps, invest in new opportunities or innovations, improve your credit score and reputation, and leverage the expertise and network of your funders.

Getting a business loan involves deciding how much money you need (and why), checking your credit score and history, comparing different loans and lenders, preparing and submitting your loan application, waiting for the lender’s decision, accepting the loan offer and using and repaying the money.

Disclaimer: The information provided in this document does not, and is not intended to constitute legal advice; instead, all information, content, and materials available are for general informational purposes only. Information provided may not constitute the most up-to-date legal or other information, and readers of this information should contact their attorney to obtain advice with respect to any particular legal matter, in the relevant jurisdiction. All liability with respect to actions taken or not taken based on the contents here are hereby expressly disclaimed.


Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us