Funding for Small Business

For most small business owners surveyed in 2024, their startup costs were between $50k to 175k (27%) and $250k to $500k (27%). The second-highest reported startup costs were between $500k to $1 million (16%). Another 15 percent reported startup costs of $175k – $250k, while other business owners reported costs over 1 million (13%).

The percentage of loans approved by the Small Business Administration (SBA) is still relatively low. Your credit, assets, and prior business experience influence SBA loan approvals.

Other funding strategies can work well in today’s economic climate.

Rollovers as Business Startups (ROBS)

This is a process in which a current or prospective business owners use their 401(k) or other retirement funds to pay for new business startup costs, business acquisition costs, or to refinance an existing business.

There are steps in the ROBS process, including:

Setting up a C Corporation (allows you to raise funds by selling stock)
Establish qualifying retirement account (Usually a ROBS 401(k) account)
Rollover retirement savings into this account
Buy stock in your new company to cover business expenses

This can be a complex process and is not always a good fit for everyone. It may be best to consult a professional.

Home Equity Lines of Credit (HELOC)

HELOC loans operate as revolving lines of credit, allowing you to withdraw funds on a schedule of your choosing rather than receiving all of the loan proceeds at once. HELOCs also allow you to pay only the interest on the loan, allowing you to minimize your monthly payments.

Whereas traditional home equity loans carry fixed interest rates, HELOCs come with variable rates, which means that you are more exposed to interest rate risk. Although HELOCs initially allow a high level of flexibility, they automatically begin requiring scheduled principal repayments after the end of an initial period—often set within five to 10 years—known as the draw period.

Grants

A business grant is a type of grant provided to businesses, often small enterprises or startups. These are awarded by governments, corporations, or foundations to stimulate economic growth, promote innovation, and support the development of certain industries or communities. Businesses can use these funds to start up, expand, implement new technologies, or create jobs.

Unlike loans, business grants do not require repayment, but they may come with certain criteria or conditions, such as the need to match funds, create a certain number of jobs, or operate within a specific region.

Crowdfunding

Crowdfunding is another alternative source of funding that is typically beneficial for product launches. This avenue of financing is like launching a promotional landing page to gauge interest; it’s a viable way to test the market interest in what you are looking to provide.

Crowdfunding has several benefits, but if you’re interested in going this route it’s important to note that each crowdfunding site differs. Some only allow funding for a limited time, some require you to meet your goal to receive any funds and others serve as long-term community sites. Be sure to read the fine print to really understand that you may get all or nothing if going this route.