Relying on traditional business loans is difficult for a startup. Business loan requirements favor established businesses, but non-traditional funding sources can seem complicated or more involved. However, to ensure long-term viability, it’s important to know how to use these channels to secure funding for your new business.
In a Bluevine survey of 1,040 Americans who have researched business ownership, economic uncertainty (48%) and not having enough savings to cover startup costs (37%) were among the most-cited barriers to starting a business.
The same survey also found an information gap: 18% said they do not know enough about lending options—one more reason to understand the full range of startup funding paths before you apply or pitch.
When asked what would make the biggest difference in starting a business, 58% said access to startup funding or low-interest loans, and 83% said a 1% decrease in lending rates within the next 18 months would make them more likely to start.
What you need to know
- Startup owners who find it difficult to secure a traditional business
loan have many other funding options, such as venture capital, crowdfunding, grants, incubators, and more. - Unlike business loans, these other funding methods require you to make a pitch, detailing a plan, vision, and mission for your business.
- Equity funding can provide a significant capital boost, but requires you to give away some of your ownership stake.
- Many founders also use “foundational” funding (like bootstrapping and friends-and-family support) to cover early startup costs before outside capital is available.
Broaden your funding horizons
Startups can burn through a lot of money while establishing revenue streams. If this is your first business venture, you may not yet have the time in business, revenue history, or business credit profile that many lenders expect for larger business loans. That is a common reason founders use a mix of funding sources early on—especially when economic uncertainty and savings concerns are high.
If you only need a smaller amount to get started, consider right-sized lending options designed for smaller capital needs. For example, the SBA Microloan program offers loans up to $50,000 (with an average microloan of about $13,000) through nonprofit intermediary lenders.
If you cannot qualify for a traditional loan yet, you still have multiple ways to fund your startup—often in parallel. Depending on your business model, that can include bootstrapping, friends-and-family support, equity funding (angels/VCs), crowdfunding, grants, and accelerator or incubator programs.
Tip: How to stay prepared
If you’re looking for an investor, expect to share a business plan, go through due diligence, and negotiate a term sheet.
If you’re seeking a loan, be prepared for common lender requirements such as documentation, your business plan, and proof of your ability to repay (requirements vary by lender and product).
The path of equity funding
The main disadvantage of equity financing—investment received in exchange for shares—is that you have to give up a percentage of your ownership stake to acquire it. However, securing this early funding from a venture capital firm or angel investor can significantly boost your startup.
Equity funding is often raised in stages—commonly pre-seed and seed, followed by later rounds like Series A, Series B, Series C, and sometimes beyond. Some early funding may be structured as priced equity, convertible notes, or SAFEs, depending on the investor and the legal structure you choose.
Equity investors come in two main types. A venture capitalist (VC) usually works for a firm and becomes a business partner when they invest in your company. An angel investor is usually an individual and remains more independent, though they’ll sometimes request a board seat.
The key to success with equity funding is not to give up too much equity in your fundraising rounds. For example, surrendering 40% of your ownership stake in the seed round leaves you little to offer in later rounds.
Build a compelling investment proposition
While lenders look at metrics like financial projections and business credit scores, investors want to be convinced by a reliable business model, value proposition, and authentic mission—use these as the foundation of your pitch deck.
To be “investor-ready,” plan to clearly explain your market opportunity, how you will make money, what traction you have (or how you’ll get it), and what milestones this round will fund. Investors commonly request documents and diligence materials beyond the deck, like business plans and due diligence review materials.
Effective crowdfunding
Crowdfunding involves receiving many small investments from a large pool of lower-net-worth investors. One benefit of crowdfunding is that you won’t need to surrender any ownership stake, but you will need to find many more individual investors. GoFundMe, Kickstarter, and Indiegogo are common platforms for launching crowdfunding campaigns.
Crowdfunding can mean different things, so be clear about your model:
If you’re offering rewards or pre-selling a product, you are typically running a rewards-based campaign (common for consumer goods and creative projects).
If you are offering equity (or other securities) to investors through crowdfunding, you must follow securities rules. In the U.S., Regulation Crowdfunding requires offerings to happen online through an SEC-registered intermediary (broker-dealer or funding portal) and allows an issuer to raise up to $5 million in a 12-month period (among other requirements).
Typically, businesses incentivize funding by offering their product or other rewards to investors, but you’ll first need to develop a pitch and brand strategy directed at a wide audience.
Grant opportunities for startups
The benefit of grant funding is that you don’t have to give up ownership or repay the money like you would with a loan. Unfortunately, grant money is limited, and the applicant pool is large.
Important clarification: The SBA does not provide grants for starting and expanding a business.
Instead, many founders search for federal opportunities via Grants.gov, and (depending on the business) may explore specialized programs like SBIR/STTR for R&D-focused companies.
There are both government grants (from the Small Business Administration or other federal and local agencies) and non-governmental grants (from private foundations or organizations) for small businesses. Review eligibility criteria and guidelines for each grant, and write a strong proposal that highlights why your business is suited to the specific grant.
Incubators and accelerators
One way for first-time business owners to develop their management skills and deal with fewer funding stresses is to join a startup incubator or accelerator. These are organizations that support new businesses with office space, guidance, and seed funding. Often, several companies will work together in a shared space, receiving advice or instruction from experienced entrepreneurs. As always, you’ll need to prepare a pitch or proposal for the incubator owners.
Before you accept, review the program’s terms. Some accelerators provide capital and support in exchange for equity, and the amount can affect later fundraising.
Keep your options open: Alternative and non-traditional funding
When funding a startup, it’s important to keep an open mind and accept that, if one type of funding doesn’t pan out, there are alternatives. If you’re having trouble finding investors, try a peer-to-peer lending platform that will connect you directly to either individual investors or crowdfunding schemes. While peer-to-peer platforms usually offer more lenient terms than other methods, they may involve higher risk.
If you’re invoicing clients or accepting credit cards, consider revenue-based financing. This is a form of lending in which you offer a share of your future profits as collateral for a secured loan. You may find this listed under merchant services.
If your goal is to access lower-cost capital (and you qualify), compare small business financing products that match your use case—such as a business line of credit for working capital needs, a term loan for a one-time investment, or an SBA loan for eligible borrowers.
This matters because funding affordability is a make-or-break factor for many founders: In Bluevine’s survey, 58% said access to startup funding or low-interest loans would make the biggest difference in starting a business, and 83% said a 1% decrease in lending rates within 18 months would make them more likely to start.
If your goal is to build business credit over time, focus on establishing a strong credit profile and selecting financing that supports responsible credit-building. Some financing products report repayment activity to business credit bureaus (for example, Bluevine reports Line of Credit history to Experian).
See how your startup can increase its spending power with Bluevine.
Frequently asked questions about startup funding
Can a startup get a business loan with no revenue?
It can be difficult. Many lenders look for time in business, consistent revenue or cash flow, and business and/or personal credit indicators. If you are early-stage, consider right-sized options and focus on building the documentation and credit profile lenders commonly require.
Does the SBA offer grants to start a business?
Generally, no. The SBA states it does not provide grants for starting and expanding a business, though it does provide certain grants in other contexts (such as to nonprofits and for specific initiatives).
What is the difference between rewards crowdfunding and equity crowdfunding?
Rewards crowdfunding typically involves pre-selling or offering perks, while equity crowdfunding involves selling securities. In the U.S., equity crowdfunding under Regulation Crowdfunding must be conducted through an SEC-registered intermediary. There are specific limits and disclosure requirements, including a $5 million / 12-month cap.
