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Understand Types of Financing

So you’ve tapped the bank – including your piggy bank – and you still need funds for your startup? Don’t worry. There are many avenues yet to explore. Consider, with great care and caution, the following sources of financing possibilities.

Angel Investors

These are individuals or groups of individuals, who are willing to personally finance your venture. There is generally a generous selection to choose from, and they are usually less formal in requiring financial paperwork – although a solid agreement is still necessary. They typically are looking for a fast, high return on their investment, and may demand some control over your business. Find an angel investor by asking for referrals from your accountants, attorneys or bankers, or at small business development centers, regional and state economic development agencies, or business schools and colleges.

Business Incubators

Business incubators provide programs designed to help businesses succeed, often including office space, access to equipment, management assistance, and access to financing and technical support.

Credit Cards

These are a good source of fast, low-hassle cash – if you have enough credit. But it can be also one of the costliest. The interest rates can be prohibitive, and on credit card cash advances they are even higher than the standard card rate. Rolling over credit card debt through “zero-interest promotions” is a popular strategy, but if these offers dry up, you could be stuck with a large balance.

Credit Unions

Many credit unions today are branching out to offer basic business services, such as business loans, business checking, credit-card transactions, and other services. They also offer lower interest rates for loans and credit cards. Membership is required, but even these rules have been relaxed lately.


Offering your employees a small percentage of the company or its profits may be a way to get them to invest in the business. It may also induce them to work harder, since they’ll have more to gain. Just don’t give away the store.

Friends and Family

One of the easiest ways to raise startup money, after self-financing, is to tap those around you: your friends, family, business associates, fellow employees, and so on. One potentially major problem, however, is that they may feel they have some control over your business and want to interfere. It’s important that even casual loan relationships such as these be cast in writing with solid contracts and agreements.


Developed by the Small Business Administration (SBA), microloans are designed to provide very small loans – from as little as a few hundred dollars up to $35,000 – to small-business owners and entrepreneurs. The loans, however, are not available directly through the SBA, but through nonprofit community based lenders. Microloans are most often used by startup companies with lower capital requirements and limited credit histories. Interest rates tend to be higher than standard business loans, however. For more information, see Microloans at the SBA Web. Local Micro lenders, include:


This is perhaps the easiest way to finance your business because there is no one else to answer to. Your resources might include savings and checking accounts, stocks, bonds and other investments, or the equity in your home (through a second mortgage or a home-equity loan, for example). You might even use your IRA or 401(k) plans; but it is important to first discuss this with your accountant, financial consultant or tax preparer. Using your home as collateral for a business loan is the riskiest of all, because if your business fails you could lose your home.

Seller Financing

If you are buying a business from someone who is retiring, or may not need the purchase money in a lump sum, you might consider the seller, or sellers, to finance all or some of the purchase. They’ll make more money over the long run in terms of principal interest. And you’ll have an advisor on standby who wants to protect their own interests.

Small Business Investment Centers (SBIC)

SBICs are privately owned and managed investment funds that use their own capital, plus funds borrowed with an SBA guarantee, to make equity and debt investments in qualifying small businesses. They are, however, licensed and regulated by SBA. And only companies defined by the SBA as “small” are eligible for SBIC financing – that is, when the company’s net worth is $18.0 million or less and its average after-tax net income for the prior two years does not exceed $6.0 million.For more information about SBICs, see Entrepreneurs Seeking Financing at the SBA website.

Venture Capital

Venture Capital Firms are private groups that generally loan money to startup companies with higher than normal growth potential, such as those involved in information technology, biotechnology or medical research. They tend to look for their returns in shares sold during an Initial Public Offering (IPO) of stocks or an outright sale of the company. As such, small businesses are not generally high on their list of prospects, but might be considered in special cases – especially those that match their avenues of return. The National Venture Capital Association website has a Resources for Entrepreneurssection that includes  templates of legal documents often used in venture capital transactions.


Crowdfunding is a fantastic alternative source of financing for businesses who aren’t able to qualify for traditional financing options, such as bank loans. Crowdfunding is the practice of using the internet to fundraise small increments of money from a large number of people to help start or grow your business.

How does it work?

  1. Visit one of the many crowdfunding websites to see which platform is right for you, noting that they are all different. Some crowdfunding platforms require you to exchange gifts for donations, some are loans, some charge fees and taxes, while others don’t. The City of Philadelphia’s Commerce Department has partnered with the crowdfunding organization Kiva to help Philadelphia businesses crowdfund 0% interest, no fee microloans. To learn more about this platform, visit Kiva.org/Philadelphia.
  2. Once you have selected the platform that works best for you, create a business profile explaining the mission of your organization, who you serve, and the project you are requesting funds for. Different platforms may allow you to post your profile right to the website, while others like Kiva, will review and edit your profile to ensure fundraising readiness.
  3. Depending on the platform you use, a combination of your own network and people from around the world will lend/give small increments of money until time runs out, or you reach your goal. For many crowdfunding platforms, if you do not reach your goal, you will not receive your funds.
  4. After you receive the funds, you can put them to use! Depending on the terms of the crowdfunding platform you used, you may either be responsible for paying back the funds, or sending gifts to those who contributed to your project.

Kiva City Philadelphia

The City of Philadelphia’s Commerce Department, in conjunction with the crowdfunding non-profit, Kiva.org, launched Kiva City Philadelphia to help Philadelphia businesses crowdfund 0% interest, no fee microloans.

Using Kivazip.org (or Kiva.org/Philadelphia for local information) socially impactful or financially excluded business owners can access 0% interest, no fee microloans for up to $5,000. All of the loans are crowdfunding by hundreds of lenders from around the world, who read about a Philadelphia business owner, lend as little as $5, and become supporters, customers, and ambassadors for the business owner.

Kiva does not check credit scores or collateral when assessing whether a business owner qualifies for a loan, instead they check character. They do this by partnering with organizations around the city, such as The Enterprise Center, New Kensington CDC, Common Ground Management, and The Food Trust, who vouch for businesses they want to support, and by having each borrower access their network for potential lenders.