creative financing

7 Creative Financing Options for New Businesses and Startups

It takes money to make money. But financing isn’t always easy — especially if you’re the proud founder of a brand new business. Traditional banks and financial institutions set a high bar for borrowers. They want to see years in business, consistent revenue and excellent credit scores, and those are things that most new businesses just don’t have. Fortunately, not all is lost. You still have plenty of creative financing options to fund your business. You’ll need to think outside the box, but you’re bound to come across your “aha” financing moment in this article.

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Creative financing options for new businesses


Bootstrapping is when you use your own money or reinvest initial sales into financing your business. Bootstrapping your business decreases liability, but it makes growth extremely slow. For example, saving up your personal funds to launch your business could take years. With a business loan, on the other hand, you could have those funds in a week. However, you get to maintain complete ownership of your company when you bootstrap and don’t have to worry about debt payments or collateral.

Here’s a great story from an entrepreneur who bootstrapped her business that will help give you an idea of how you can scale your business via bootstrapping.

Friends and family

Asking friends and family for capital is always an option. You’ll have to set the terms for the agreement upfront, though, to avoid confusion down the road (is this going to be a loan, or will it be a donation?) While it might sound strange getting your brother-in-law to sign a contract, a legal document is a great way to establish expectations for both parties.

Funding your operation through family and friends is one of the cheapest business financing methods available to novice entrepreneurs, and it’s a popular one: A survey by the Kauffman Foundation estimates that friends and family contribute more than 40% of startup funding. However, this type of funding could put your relationships in jeopardy. Startups are always risky, so jeopardizing your personal relationships a risk you should avoid if possible.

Startup competitions

Pitch your business idea at a competition to earn startup funding. You’ll be up against other brilliant ideas, but it’s an excellent opportunity to win financing. Plus, if you don’t win, you’ll still grow your pitching skills, hash out your business plan and potentially meet like-minded entrepreneurs (potential partners) and venture capitalists.

You can find startup competitions in various places throughout the world at just about any time of the year. Check out this list of pitching competitions. Most are happening virtually to accommodate pandemic restrictions, making them more accessible than ever.

Successful companies like Pinterest, Thumbtack, Yammer and UberConference all got their start winning startup competitions. If a bank doesn’t believe in your idea, the startup community might — and there’s a good chance they’ll give you a lot of money if they do.


Startup accelerators provide seed money, counseling, networking and other services to launch your business. They’ll require equity in exchange for financing, so it’s not free money — but it is zero-payment funding that can get your business off the ground.

Since accelerators are essentially investing in your business, they have a mutual interest in your success. They want to provide all the financial support, training and mentorship they can to grow your business because when you succeed, they succeed.

World-class accelerator programs (like Y Combinator, Techstars, Dreamit and the like) are incredibly competitive. Acceptance rates can be as low as 1%, so you’ll need to bring your A-game.


You’ll often hear people talk about small business loans and grants as if they’re on the same spectrum. They’re not. A lender lets you borrow money in the form of a loan, and you’ll pay it back (with interest). A grant provider gives you money, no interest and no repayment required.

Since grants provide free funding for businesses, they’re incredibly competitive. Who doesn’t want free money? You’ll need to build top-notch applications to stand a chance of winning a grant, especially if it’s for a substantial amount of money.

You can’t just use grant funds all willy nilly, either. Federal and state agencies, local communities and private companies provide grants under strict qualifications and use cases. You’ll usually need to use the money for very specific business purposes.

Fortunately, there are several grant options available. Check out this list of small business grants, and this one for grants for women- and minority-owned companies.

Angel investing and venture capital (VC)

Angel investors and venture capitalists can provide substantial capital to startups. They usually provide mentorship, networking and partnership relations, too.

However, VC funding isn’t free money. You’ll have to trade your business’s equity. That might seem like a small cost now, but it could be a lot more expensive than a loan if you hit it big. Loans get paid off, but equity costs you a portion of your business — forever.

You could also lose control of your business. When you give up equity, you also disburse decision-making to more people. That could be a good thing when it comes to charting your business’ future, but it might not be the right choice for you personally.


Crowdfunding is a way for entrepreneurs to fund their businesses through the public community. Instead of asking a VC or bank for a large chunk of change, you can ask hundreds of thousands of individuals for smaller investments.

Many companies have found big-time success through crowdfunding campaigns on platforms like Kickstarter, GoFundMe and Indiegogo. They’re reliable sites for finding backers; however, remember you’ll need to pay these platforms a percentage of your earnings.

Crowdfunding helps you raise money and market your business without taking on debt or giving up equity in your business. By the time your wholly funded, you may already have an audience eagerly waiting for your product or service. Keep in mind, however, that even crowdfunding isn’t always free money: your audience will usually want backer rewards, recognition and future product in exchange for their investment.

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