In addition to drive, ambition, and careful planning, starting and expanding a small business generally requires capital. Funding may come from personal savings, family, friends, lenders, investors, or government-supported programs. This guide provides an overview of ways to raise the money you need to start or grow your business.
One key to a successful business start-up or expansion is your ability to obtain appropriate financing. Raising capital is one of the most basic business activities, but it can also be a complex and frustrating process. Professional guidance may be helpful, particularly when preparing the financial information required for a loan proposal.
Table of Contents
- Finding Sources of Money
- Borrowing Money
- How to Write a Loan Proposal
- How Your Loan Request Will Be Reviewed
- Small Business Administration (SBA) Programs
- Government and Non-Profit Agencies
Finding Sources of Money
There are several sources to consider when looking for financing. Explore your options carefully before deciding which source is best for your business.
- Personal Savings. Personal savings and other resources are common sources of start-up capital. Although some business owners use credit cards to finance business needs, compare the interest rates and repayment terms with other financing options before borrowing.
- Friends and Relatives. Entrepreneurs sometimes obtain funding from family members and friends. These arrangements may offer flexible terms or lower interest rates, but it is important to agree on repayment terms and document whether the money is a loan or an investment.
- Banks and Credit Unions. Financial institutions may provide loans when a business demonstrates a sound proposal, adequate repayment capacity, and an acceptable credit profile.
- Venture Capital Firms. Venture capital firms invest in selected businesses, often those with significant growth potential, in exchange for equity or partial ownership. This means you may need to share ownership and decision-making authority.
Other potential funding sources may include angel investors, business partners, supplier credit, crowdfunding, grants, and business development programs. Availability and eligibility vary by location, industry, and business circumstances.
Borrowing Money
Small business owners sometimes find it difficult to obtain financing, but a well-prepared application can improve their chances. Lenders need to understand the business, how the funds will be used, and how the loan will be repaid.
Applying without adequate preparation may signal a high level of risk. Before approaching a lender, determine exactly how much money you need, why you need it, and how you intend to repay it. Be prepared to demonstrate that your business can meet its financial obligations.
A lender may review your business credit report, financial records, business plan, and personal financial position. Common considerations include:
- Owner contribution: How much of your own savings or equity have you invested in the business?
- Creditworthiness: Does your credit history demonstrate responsible borrowing and repayment?
- Experience: Do you have the training and experience needed to operate the business successfully?
- Business plan: Does your proposal demonstrate a clear understanding of the market, operating costs, and business objectives?
- Cash flow: Can the business generate sufficient cash to cover loan repayments and other operating expenses?
- Collateral: Can you provide assets or other acceptable security if the lender requires it?
Short-Term and Long-Term Loans
Business loans can be structured in different ways depending on the purpose of the financing and the lender’s terms.
- Short-term financing: May be used for working capital, accounts receivable, inventory, or temporary cash-flow requirements. Repayment periods and terms vary by lender.
- Long-term financing: May be used for major expenses such as purchasing property, constructing facilities, or acquiring equipment, vehicles, furniture, and fixtures. These loans generally have longer repayment periods.
- Lines of credit: Allow eligible businesses to draw funds up to an agreed limit as needed, subject to the facility’s terms. They may be useful for managing seasonal or fluctuating cash-flow requirements.
Compare interest rates, fees, collateral requirements, repayment schedules, and the consequences of missed payments before accepting a loan.
How to Write a Loan Proposal
Approval of a loan request depends partly on how clearly you present your business, financial needs, and repayment plan. A written proposal helps a lender understand the purpose of the loan and assess whether the business can repay it.
A well-prepared loan proposal should contain the following elements.
General Information
- Business name, names of the principal owners, and business address.
- The purpose of the loan, including exactly how the money will be used.
- The amount required and how the amount was calculated.
Business Description
- A description of the business, its history, and the products or services it provides.
- The age of the business, number of employees, and current business assets, where applicable.
- The legal and ownership structure of the business.
Management Profile
Provide a short profile of each principal or key owner. Include relevant education, experience, skills, achievements, and responsibilities within the business.
Market Information
Describe your products or services and the market you intend to serve. Identify your competitors, explain how your business differs from theirs, and show how your products or services meet customers’ needs.
Financial Information
- Financial statements: Provide available balance sheets, income statements, and other relevant financial records. New businesses may need realistic financial projections instead of historical statements.
- Cash-flow projections: Show expected income and expenses and explain how the business will make loan repayments.
- Personal financial information: Provide the personal financial statements of owners when required by the lender.
- Collateral: Identify any assets you are willing and able to offer as security, if applicable.
Make sure the information is accurate, consistent, and supported by records. A clear explanation of how the loan will improve the business can help the lender evaluate the proposal.
How Your Loan Request Will Be Reviewed
When reviewing a loan application, a lender is primarily concerned with the borrower’s ability and willingness to repay. The lender may assess your credit history alongside the financial and operational information you provide.
Common questions include:
- Have you invested an appropriate amount of personal savings or equity in the business?
- Does your credit history demonstrate a reliable record of meeting financial obligations?
- Do you have the experience and training needed to operate the business?
- Does your business plan show a realistic understanding of the market and the business’s prospects?
- Does the business generate, or have a credible plan to generate, enough cash flow to make repayments?
- Is the requested amount reasonable for the stated purpose?
- Is any required collateral available, and are the proposed repayment terms suitable for the business?
Prepare supporting documents before applying, respond promptly to requests for additional information, and ensure that your financial projections are realistic. Lenders may apply different criteria depending on the type of loan and the risk profile of the business.
Small Business Administration (SBA) Programs
The U.S. Small Business Administration (SBA) supports eligible small businesses through various financing and business assistance programs. Some programs provide guarantees to participating lenders rather than lending money directly to businesses.
The programs described below are U.S.-specific. Program names, loan limits, fees, eligibility requirements, and terms may change. Consult the official SBA website and an approved lender for current information before relying on any program details.
The 7(a) Loan Program
The SBA 7(a) Loan Program is a principal SBA lending program. It helps participating lenders provide financing to eligible small businesses by guaranteeing a portion of qualifying loans. This can help businesses that may not otherwise qualify for financing on reasonable terms.
Eligible uses may include:
- Expanding or renovating business facilities.
- Purchasing machinery, equipment, fixtures, and leasehold improvements.
- Financing working capital, inventory, or eligible accounts receivable needs.
- Refinancing certain existing business debt when program requirements are met.
- Financing eligible commercial property purchases or construction.
- Supporting other eligible business purposes permitted by the program.
How the Procedure Works
You generally begin by applying through a participating lender. The lender reviews your application and determines whether the financing can be provided under its own lending criteria or with an SBA guarantee. If SBA support is needed and the application meets the program’s requirements, the lender follows the relevant SBA approval process.
If approved, the lender closes the loan and disburses the funds. You remain responsible for repaying the full loan amount, including applicable interest and fees, according to the loan agreement.
Terms, Interest Rates, and Fees
Loan maturity, interest rates, guarantee fees, and other charges depend on the current program rules, loan size, repayment period, and lender agreement. Both fixed and variable rates may be available under applicable terms.
Request a written breakdown of the interest rate, fees, repayment schedule, collateral requirements, and any personal guarantees before signing a loan agreement.
Collateral and Eligibility
Eligibility depends on factors such as the business’s activities, size, ownership, location, financial position, and intended use of the funds. The lender may require available business assets, personal guarantees, or other security under the applicable rules.
Businesses should confirm eligibility and documentation requirements directly with an SBA-approved lender.
What You May Need to Provide to the Lender
Depending on the loan and the lender’s requirements, you may be asked to provide:
- A completed loan application and any required SBA forms.
- Personal background and financial information for relevant owners.
- Business financial statements, including profit and loss statements and balance sheets.
- Realistic financial projections and an explanation of the assumptions used.
- Ownership information and details of affiliated businesses.
- Business registration, licences, and other relevant legal documents.
- Records of previous loan applications or existing business debts.
- Personal and business tax returns, where required.
- Resumes or background information for key owners and managers.
- A business overview explaining why the loan is needed and how it will be used.
- A lease or other property documentation, where applicable.
- Additional financial and transaction records if you are purchasing an existing business.
The exact documentation checklist should be obtained from your lender because requirements vary by transaction and can change.
Learn more about the SBA 7(a) Loan Program.
Microloan Program
The SBA Microloan Program supports eligible small businesses and certain nonprofit childcare centres through loans made by nonprofit intermediary lenders. These lenders receive funds and provide loans to qualifying borrowers.
Depending on the lender’s requirements, microloan funds may be used for purposes such as:
- Working capital.
- Inventory and supplies.
- Furniture and fixtures.
- Machinery and equipment.
Program restrictions apply. For example, SBA microloan proceeds generally cannot be used to purchase real estate or repay existing debt. Intermediary lenders set their own application criteria within the program’s rules and may require collateral or personal guarantees.
Contact an intermediary lender to confirm current loan limits, eligibility, interest rates, fees, and permitted uses.
Learn more about SBA Microloans.
CAPLines Program
The SBA CAPLines program is designed to help eligible small businesses meet short-term and cyclical working-capital needs. Depending on current program rules and lender approval, financing may support seasonal activity, contracts, construction projects, or other eligible working-capital requirements.
Program structures have included the following types of financing:
- Seasonal Line: Supports eligible seasonal increases in working-capital needs.
- Contract Line: Helps finance eligible costs associated with performing contracts, subcontracts, or purchase orders.
- Builders Line: May support eligible construction or rehabilitation projects undertaken by small contractors or developers.
- Working Capital Line of Credit: May provide revolving financing for eligible working-capital needs, subject to program and lender requirements.
Eligible uses, maximum amounts, repayment conditions, and documentation requirements depend on the specific facility and current SBA rules. Businesses should confirm whether a relevant CAPLines option is currently available through an SBA-approved lender.
Visit the official SBA website for current program information.
Export Working Capital Program
The SBA Export Working Capital Program has been designed to help eligible U.S. small businesses finance export transactions. Depending on the current program rules, financing may help cover expenses from the purchase-order stage through production, shipment, and collection of payment.
Potential uses may include:
- Financing suppliers, inventory, work in progress, or production of export goods and services.
- Supporting eligible foreign accounts receivable during longer payment cycles.
- Financing eligible standby letters of credit used for export-related transactions.
Businesses should discuss their export contracts, buyer arrangements, working-capital requirements, and documentation with a participating lender. Availability and conditions must be confirmed under current program rules.
Visit the SBA website for current export-financing options.
International Trade Loan Program
The SBA has offered international trade financing options for eligible U.S. small businesses seeking to expand export markets, develop new markets, or improve their competitive position in response to import competition.
Depending on the current program and the lender’s approval, eligible financing may support the acquisition, construction, renovation, modernisation, or expansion of facilities and equipment used for qualifying business activities. Certain eligible refinancing and working-capital needs may also be considered under applicable program rules.
Eligibility and permitted uses are subject to current SBA requirements. Contact an SBA-approved lender to determine which export or international trade financing option may be appropriate for your business.
Visit the SBA website for current international trade financing information.
Disaster Assistance Loans
The SBA Disaster Assistance program may provide financial assistance to eligible businesses, homeowners, renters, and certain nonprofit organisations affected by declared disasters. Availability depends on the type of disaster, location, eligibility rules, and current program offerings.
Types of assistance have included:
- Business Physical Disaster Loans: May help eligible businesses and certain nonprofit organisations repair or replace qualifying property, equipment, inventory, and other physical assets damaged in a declared disaster.
- Economic Injury Disaster Loans: May help eligible businesses and organisations meet certain operating expenses and financial obligations when a declared disaster causes qualifying economic injury.
- Military Reservists Economic Injury Loans: Have been designed to help eligible small businesses meet certain operating expenses when an essential employee is called to active military duty as a reservist.
- Mitigation-related assistance: Certain disaster assistance options may support eligible improvements intended to reduce future disaster damage, subject to current program rules.
Loan amounts, interest rates, maturities, deadlines, eligible expenses, and geographic requirements vary. Do not rely on historical program limits when applying; check the current terms for your specific disaster and location.
Learn more about SBA Disaster Assistance.
SBA Express Loan Program
The SBA Express program has provided an expedited SBA review process for eligible small-business financing applications. Participating lenders use their own lending procedures alongside applicable SBA requirements.
Loan limits, guarantee percentages, turnaround times, interest-rate restrictions, collateral rules, and eligible uses are governed by current program requirements. An expedited review does not guarantee approval, and the lender still evaluates the borrower’s ability to repay.
Contact an SBA-approved lender to confirm current Express program terms and whether the program fits your financing needs.
Explore current SBA 7(a) loan options.
Certified Development Company (504) Loan Program
The SBA 504 Loan Program provides eligible small businesses with long-term financing for certain major fixed assets through a partnership involving a Certified Development Company (CDC), a private-sector lender, and the business borrower.
Eligible project purposes may include qualifying purchases or improvements involving:
- Land and existing buildings.
- Construction or renovation of facilities.
- Long-term machinery and equipment.
- Other eligible fixed assets that support business growth and development.
Certified Development Companies help package and process applications and work with participating lenders under SBA requirements. The program has specific rules regarding eligible assets, borrower contributions, project size, and business eligibility.
Current loan structures, maximum amounts, maturity periods, fees, and eligibility criteria should be confirmed with a CDC or participating lender.
Learn more about the SBA 504 Loan Program.
Small Business Investment Company Program
The Small Business Investment Company (SBIC) Program is an SBA-licensed investment framework designed to help eligible small businesses access growth capital. SBICs are privately managed investment firms that invest in qualifying businesses using private capital and, where applicable, funds supported by SBA leverage.
Depending on the investment firm and the business, financing may take the form of equity investments, loans, or a combination of debt and equity. Some investment firms may also provide management expertise or strategic support.
Investment firms differ in their preferred industries, business stages, investment sizes, and expected growth potential. Businesses considering this route should review an investor’s criteria, the proposed financing structure, and the implications for ownership and control.
Visit the SBA website for current information about the SBIC Program.
Surety Bond Program
Some public-sector and private construction contracts require contractors to provide surety bonds. These bonds help protect the party awarding the contract by providing specified financial assurances if the contractor fails to meet its obligations.
The SBA Surety Bond Program has helped eligible small businesses obtain certain bid, performance, and payment bonds through participating surety companies.
- Bid bonds: May provide assurance that a contractor will honour the terms of a bid and proceed as required if awarded the contract.
- Performance bonds: Provide protection under the bond terms if a contractor fails to perform its contractual obligations.
- Payment bonds: Help protect eligible parties who supply labour or materials for a covered project.
Bonding requirements, contract limits, fees, and eligibility depend on current program rules and the surety provider. Businesses should verify the current requirements before including this option in their financing or contracting plans.
Visit the SBA website for current surety bond information.
Government and Non-Profit Agencies
Government agencies and nonprofit organisations may offer business advice, training, mentoring, financing support, or referrals to suitable funding sources. The services available depend on your location, industry, business size, and eligibility.
For businesses operating in the United States, the U.S. Small Business Administration is a useful starting point for information about business financing, lender programmes, and local support services.
- U.S. Small Business Administration — Information on small-business financing, business guidance, and support resources.
- SBA District Offices — Find official SBA district office information and local resources.
If your business operates outside the United States, check the official government business-development agencies, financial institutions, enterprise funds, and nonprofit business-support organisations in your own country. Eligibility for U.S. SBA programmes is generally tied to U.S. requirements and should not be assumed to apply to businesses elsewhere.
Editorial note: This guide contains general information about life insurance. Some examples, cost assumptions, product descriptions, and references in the original article may be dated or vary by insurer and jurisdiction. Review current policy documents and consult a qualified insurance or financial professional before making coverage decisions.
