Small Business Funding Options: Loans, Grants, Investors

The main ways small businesses raise money, and what each one costs you.

Small business funding options range from your own savings to SBA-backed loans, grants and investors, and each one has a price: interest, ownership or conditions. This guide compares them so you can choose the lowest-cost money that fits your stage.

Every funding source has a price: interest, a share of ownership or strings attached. Knowing the options helps you choose the cheapest money that fits your stage.

Your own money and friends and family

Most businesses start with the owner’s savings. Money from family or friends is flexible, but put the terms in writing (loan or ownership, repayment, what happens if the business fails).

SBA-backed loans

The SBA does not usually lend directly. It guarantees part of loans made by banks and other lenders, which makes lenders more willing to say yes. The main programs:

7(a) loans: the most common SBA loan, for working capital, equipment, real estate or buying a business.
504 loans: long-term, fixed-rate financing for major assets such as buildings and heavy equipment.
Microloans: up to $50,000 through nonprofit lenders, often paired with training.

The SBA’s free Lender Match tool connects you with lenders interested in your loan.

Grants

Grants do not have to be repaid, so competition is strong. Federal grants for businesses are mostly for research (the SBIR and STTR programs). State and local governments, utilities and companies offer smaller grants for specific goals, such as hiring, storefront upgrades or recovery from disasters. Be wary of anyone who charges a fee to get you a grant.

Community lenders

Community Development Financial Institutions (CDFIs) and credit unions often lend to businesses that banks turn down, with coaching included.

Investors

Angel investors and venture capital firms trade money for ownership. They suit businesses that can grow very fast. Crowdfunding, through rewards or regulated equity platforms, is another route.

Get ready before you apply

Lenders will want a business plan, financial statements, tax returns and a clear explanation of how the money will be used and repaid. Check your personal credit early.

Key takeaways

Match the funding to your stage: savings and loans first, investors only if you need fast growth.
SBA guarantees make bank loans easier to get; Lender Match is free.
Real grants never require an upfront fee.