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How to fund your small business

Key takeaways

  • Options to fund your growing business include investors and lenders, as well as personal loans, lines of credit, invoice financing, crowdfunding, and grants. 
  • Online lenders may also be a source for funding, but be sure to review all terms carefully and protect yourself from predatory lenders.
As your business evolves, you may need an infusion of cash to invest in expansion, purchase upgraded equipment, or cover operating costs.

Where to get funding to grow your business

Funding typically comes from investors or lenders, and the type of funding you can access will likely depend on how you’re incorporated.

Investors will usually provide capital in exchange for equity—an ownership share and active role in the company, which includes a portion of the profits. In most cases, investors will require your business to be an LLC or a corporation.

Lenders like banks or credit unions offer business loans that can be paid back over time. Getting a business loan as a freelancer or small business owner can be challenging, particularly if you are a sole proprietor. Lenders often view freelancers as a risky investment. With significant income fluctuations, no protection against liability, and no backup in case of a personal emergency, you could end up unable to repay the loan. US Small Business Association programs are available that can guarantee a percentage of your loan, reducing the risk to lenders.

Other self-employed funding options

If investors or lenders aren’t an option for you, other sources of funding to consider if you’re self-employed include: 
  • Personal loans determine eligibility based on personal credit and income, rather than business financials. Personal loans can be easier for freelancers to obtain, but they may come with higher interest rates, fees, or penalties. 
  • Lines of credit, such as a personal or business credit card, can be used for expenses up to a certain limit. 
  • Invoice financing provides capital based on outstanding invoices, and can help to smooth cash flow while you wait for payments to come in. 
  • Crowdfunding raises money through the broader public, providing a reward or perk in exchange for capital. If you choose to raise money through crowdfunding, you’ll often do it through an online platform that will take a percentage of the money you raise. 
  • Grants are available to certain types of freelancers at a national and regional level, especially those who work in the arts.

Using online lenders to fund your business

In recent years, the number of new online lenders has multiplied, providing alternatives to traditional banks. These lenders often have fewer eligibility requirements and may look beyond the credit score to assess risk. They can provide funding quickly but may require more frequent payments. Protect yourself from predatory lenders by carefully reviewing all terms and conditions and comparing with competitors—some lenders can impose interest rates that are significantly higher than the market average, or fees that are more than 5% of the loan’s value.

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