4 ways to fund your business without getting a loan

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Obtaining funding for your small business is often stressful, time-consuming, and occasionally risky. Unless you’re the owner of a Silicon Valley unicorn startup, you’re most likely bootstrapping your venture with personal savings or seeking a business loan.

Both of these methods have their benefits and drawbacks. Using your own money is great because you’re not beholden to anyone else—but you can exhaust your personal savings fast. A business loan can give you access to much more capital than you’d ever have otherwise—but interest rates and fees drive up the cost of doing business, and this option can put your personal credit and assets at risk.

But what if there’s another option—getting funding without taking out a loan? Many entrepreneurs prefer to avoid debt financing … so what non-debt funding options are available?

Let’s review four ways to raise funding for your small business without taking out a business loan:

Most Types of Crowdfunding

You may have come across an occasional Kickstarter or GoFundMe campaign in the past, but now there are dozens and dozens of crowdfunding platforms, each with its own niche and specifications. As a result, crowdfunding has become a force in the business funding space. The rising popularity of crowdfunding has led to predictions that revenue from this type of funding will hit $300 billion by the middle of next decade.

Crowdfunding is when you pull donations, contributions, and investments for your business, project, or even nascent idea from people across the web. Donors to your crowdfunding campaign may start as family and friends, but a successful campaign will attract the attention of strangers from all over.

There are several different types of crowdfunding, and one of them (aptly named “debt crowdfunding”) is a type of debt financing, but the other varieties (donation, rewards, and equity crowdfunding) are all good options to explore if you’re trying to get funding without debt.

There are some clear benefits to attempting to raise money for your business through crowdfunding, including:

  • No minimum requirements: Unlike applying for a loan, you don’t need a minimum credit score, time in business, or even a business plan to raise money via crowdfunding. Your idea—and your ability to package and present that idea—is all that matters.
  • Less paperwork, more power: Instead of filling out applications, gathering documents, and waiting for lenders to give you an answer, you can run your crowdfunding campaign on your own terms. You’ll also learn and refine valuable skills like marketing and community-building along the way. Building a crowdfunding campaign isn’t easy, but you’ll decide how much to put into the project.
  • Market validation: If your business is still in the development or startup stages, you can gather feedback and validation from your crowdfunders, confirming that you’re on the right track.

There are some drawbacks to crowdfunding as well. It’s not completely free, as most platforms will take a small percentage of your earnings as compensation for hosting your campaign. According to data from Kickstarter, one of the largest crowdfunding platforms, only 37% of campaigns are successfully funded—so it’s more likely than not that you’ll fail to raise the money you need via this method. The stakes are low, however, so it’s worth giving it a shot. You can also increase your chances of success through careful planning and preparation.

Small business grants

One of the best kinds of business funding is free business funding, such as one of the vast number of small business grants out there for enterprising entrepreneurs.

A grant is a chunk of money awarded by an organization—it could be a government agency, a non-profit, or even a wealthy individual—to a business for a specific purpose. That means you generally will need to put a grant towards funding a specific area of your business. (On the other hand, you can use many business loans for a variety of business needs).

There will be lots of competition for most grant competitions. That means you’ll have to spend lots of time and energy building your proposal and preparing your business for scrutiny. That being said, the potential payoff is free money for your business.

Grant dollar amounts can range from a few hundred to tens of thousands of dollars. Consult a list of small business grants, or get in touch with your local Chamber of Commerce to see what’s available.

Business credit cards

Technically, credit cards are a form of debt financing—a type of short-term line of credit. But credit cards can be useful tools for any small business owner, and if you use yours the right way you might never pay a cent of interest.

Business credit cards may give business owners a small cash flow cushion: if you time it right, you can put large purchases on your credit card and take a few extra weeks to pay it off without incurring any interest payments. Just be sure you pay each purchase off in full rather than carrying them over from month to month.

If you have a good credit score, you may even qualify for a business credit card with a 0% introductory APR. That means the issuer won’t charge you any interest on your purchases (and sometimes balance transfers) for as long as 12-15 months. After that introductory period, your APR will revert to a normal rate.

This makes 0% APR introductory cards a great no-interest way to fund your bigger (or even everyday) business purchases for a period of time. Just make sure you have enough to pay off your expenses before you incur any interest.

Equity financing

Finally, it’s worth noting that equity financing may be an option for small business owners. Equity financing is when you sell off pieces of your business to investors in exchange for capital that you can use to grow.

Your equity financiers will, from then on, be part-owners in your business (unless or until you buy them out again). They may have voting rights, earn dividends from the shares they bought in your business, and otherwise profit from or make decisions about your company.

It’s rare for small businesses to receive venture capital funding. More common is selling a piece of your business to friends, family members, or fellow business owners in your community.

On one hand, equity financing means you don’t have to repay your investors. You may also benefit from bringing on additional business owners—some of whom may have insight into how to succeed in your line of business.

Keep in mind, however, that from that point on you will no longer be the sole owner of your business. And your new co-owners may have new and different expectations for what your business can and should be, particularly from a revenue standpoint. Make sure you know what those expectations are before moving forward with this financing option.

There are many reasons why a small business would need additional funding, beyond what the owner has in their personal bank account, or what the business makes on a weekly or monthly basis.

You might want funding to help you capitalize on an excellent growth opportunity, or to scale more quickly. Or maybe you need help recovering after an unexpected emergency, or after a surprise expense hits your books.

Whatever your reason is for needing funding, it’s smart to explore loan and non-loan options alike. See what you can afford, what works best for your business model, and what you think you can qualify for. Sometimes, the non-loan options listed above may be all you need.

Eric Goldschein
Eric Goldschein is an editor and writer at Fundera, a marketplace for small business financial solutions such as business loans. He covers entrepreneurship, small business trends, finance, and marketing.

Hi there! This post exists to offer you (hopefully) useful information and insights, but it cannot take the place of personalized professional advice. Please consult a qualified expert if you have questions about your business. Also, Azlo doesn’t endorse any third-party sites that are linked here.

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