Startup Financing Options

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How to Get Funding with Start-up Loans


A start-up company is a business that Is at the very first stage of operation. It is a new business which is basically unknown and unproven, but has great potential. Like any business, start-ups need funding for short and long term business projects. Start-up loans are often vital to whether or not the business ever gets off the ground or meets with long term success.


The majority of start-ups do not have credit history or revenue bur still need valuable finances. There are several options for businesses to access start-up loans to keep their companies viable. The sources of funding, amounts, and terms vary depending on the lender.


This article provides an overview of these opportunities for start-up loans:

  1. Crowdfunding
  2. Angel Investors
  3. Loans from friends and family
  4. Home equity loans
  5. Funding from retirement accounts


The key to a successful business strategy is to get information about start-up loans long before they are needed. Preparation in advance will guide business owners in the right direction to get financial help at the right time, with the right lender.



Crowdfunding is an alternative mans of financing for start-up businesses. It provides an online platform in which entrepreneurs can search for the funding they need from a group (or crowd) of investors. The investors are most often individuals in sectors other than financial who have an interest in investment. They work alone or with other potential investors to get new businesses off the ground.


Crowdfunding is gaining in popularity, especially for entrepreneurs that do not have years in the business or do not yet generate a lot of revenue. To participate, the business owner carefully prepares a business plan and a “campaign” which outlines why their start-up company is the best choice for investments.


Below are just some of the suggestions that have proven successful for new business owners interested in getting start-up loans with crowdfunding:


  • A creative, well written and appealing campaign grabs attention and makes a great impression to the best investors.
  • It is helpful to offer potential investors other opportunities to get involved with the business other than start-up loans. Some investors are willing to give advice, provide word of mouth advertising, or other non-financial assistance.
  • Fun and interesting perks like rewards, true stories, and personal messages to donors draw investors to start-up businesses.
  • The business owner should stay on top of their posting campaign to keep it fresh, up to date, and accurate.


In some locations, crowdfunding platforms let a business owner offer equity in their business in exchange for their investment. Business owners should carefully consider the pros and cons of this option before making such an offer.


Angel Investors

An angel investor is a private individual that is willing to provide start-up loans to companies. Angel investors often seek investments in the technology industry. Their focus is on getting in on the ground level of the business and seeing it through to its success going forward. Often, angel investors take equity in the business in exchange for funding, or contract a convertible note which can be changed to equity at a predetermined date in the future


Angel investors are usually wealthy individuals with resources to provide finances for new or existing businesses of strangers. These can be found through investor listings or resources such as crowdfunding. Often, though, angel investors are people who have a business or personal relationship with the business owner.


Start-up Loans from Friends and Family

Some new business owners turn to people they know first for financing. Although some people would be hesitant to borrow from a friend or family member, many have done so with lots of success. Family and friends may be in the position to offer low, or no, interest loans without the strict credit qualifications that most banks and financial institutions require.


According to business owners who have utilized start-up loans from friends and family, the best practices are:


  • Nothing should be left to chance with regard to the terms of the loan. A comprehensive contract should be drawn out that covers, in detail, all issues related to the loan, including repayment, what happens if the business folds, and whether the borrower is offering equity in the business.
  • Both parties should keep the business relationship separate from any personal association. Issues related to the business should be discussed outside of social situations at all times.
  • The borrower and the lender should be well informed about legal issues which relate to the transaction, such as tax implications. Consultation with a business attorney can turn up loopholes or prevent misunderstandings before the contract is signed.


Hurt feelings and broken relationships can result when loans from friends and family go south. The key is to keep communication open and treat each party with the respect of a business associate, leaving personal issues for the casual times.


Home Equity Loans

Very often, new business owners tap into the equity in their home for start-up loans. As relatively easy as this solution can be, it is also one that should be approached with a crystal clear understanding, since something very valuable to the owner can be at risk.


The amount of a home equity loan is based upon the amount principle that has been paid on the loan. In other words, the equity is the amount of money that is the difference between how much a home is currently worth and what is still owed. If a homeowner has lived in the home many years, this can be quite a bit of capital to use to start their business.


However, the homeowner should also consider:


  1. Whether the business venture will generate enough income to pay for the home equity loan
  2. If they are certain that they are willing to put their residence at risk of foreclosure
  3. If taking on more debt (for possibly 15 years) is a financial fit


The decision to use home equity loans to start a business is as unique as the business and business owner. Again, care should be taken when thinking about making an investment in the business which could affect future assets, like a home.


Funding from Retirement Accounts 

Retirement accounts, like 401k’s and IRAs, can also be used as a source for start-loans. The personal retirement account, in these cases, is converted into a new investment in the business. Conversion of retirement accounts to investment accounts is a complicated legal process; it is managed by a third party that oversees the process.


It is of the utmost importance to use a very reputable firm handle the conversion of a retirement account. An attorney should also be part of the team to make sure everything is in order. However, if the business succeeds, start-up loans from retirement accounts can bring an excellent return on investment in the future.


Not much is more exciting and rewarding than starting a new business that has the potential to grow to its fullest. These days, millions of people come up with ideas and products that change the way people live. But they all have to start somewhere; start-up loans are the first step to an extraordinary and lucrative business venture.

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Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.