Independent since 2015
7 ways to finance a startup, and what each one costs
By Solomon Wiesen, editor. Updated October 2026. Editorial standards | How this site is funded
There are only two basic ways to fund a company: borrow money and repay it with interest (debt), or sell a share of the business (equity). Everything else is a variation on those two, plus the rare money you never repay. Debt costs interest that ends when the loan does; equity costs ownership you never get back.
- The seven sources: your own money, friends and family, loans, angel investors, venture capital, incubators and accelerators, and government programs.
- Cheapest outside money: SBA-backed loans (capped at 10% to 13.5% in October 2026) and nonprofit loans such as Kiva (0%).
- Equity suits companies that can grow fast and be sold; most businesses should borrow instead.
- Under $50,000? Start with savings, family, a microloan or Kiva.
The seven sources below cover what is realistically open to a new business, what each one costs, and who it suits. Most founders end up combining two or three.
How much each source can realistically provide
Typical amount ranges from the programs and sources described below. The scale is logarithmic: each gridline is ten times the one before.
| Source | Type | What it costs you | Best for |
|---|---|---|---|
| 1. Your own money | Equity (yours) | Nothing on paper; the money is fully at risk | Every founder; lenders expect it |
| 2. Friends and family | Loan, gift or equity | Low rate; the risk is the relationship | Early needs under $50,000 |
| 3. Loans | Debt | Interest; 10% to 13.5% cap on SBA 7(a) in October 2026 | Businesses that can cover a payment |
| 4. Angel investors | Equity | A share of the company | Companies that can grow fast and be sold |
| 5. Venture capital | Equity | Significant ownership and control | Companies chasing very large markets |
| 6. Incubators and accelerators | Equity or fees | Often 5% to 10% equity, or rent | First-time founders who need a network |
| 7. Government programs and grants | Loans and some grants | Paperwork and time | Research companies; local loan programs |
1. Your own money
Savings are the starting point for most new businesses. They cost no interest and no ownership, and outside funders expect them: for an SBA loan, a startup generally has to contribute at least 10% of the project cost. Home equity borrowing puts your home on the line, and a rollover of retirement funds (ROBS) is legal but complex and can cost you your retirement savings. Get professional advice before either.
2. Friends and family
People who know you will back you before any institution does. Agree whether it is a loan, a gift or an ownership stake and write it down. For a loan, sign a promissory note with a rate and schedule; the IRS expects loans above $10,000 to carry at least its published minimum interest rate. Take only what the person can afford to lose, and say so plainly.
3. Loans
Debt lets you keep full ownership, and the cost is known in advance. The catch for a new business is qualifying.
- Bank and SBA-backed loans are the cheapest and hardest to get. SBA rates are capped; the startup business loans guide has the ceilings by loan size. If you were declined, see what to do after a bank says no.
- Microloans of up to $50,000 come from nonprofit lenders that work with new and underserved founders.
- Online loans and lines of credit are faster and cost more. Most need at least six months of revenue.
- Business credit cards are the easiest credit to get and the most expensive to carry. See using a business credit card to fund a startup.
- Merchant cash advances are a sale of future revenue, not a loan, and among the costliest funding available. Read merchant cash advances, explained first.
4. Angel investors
Angels are individuals who invest their own money in very young companies, usually for equity or a note that converts to equity later. Individual checks often fall between $25,000 and $100,000, and angels frequently invest in groups. They suit businesses that can grow quickly and eventually be sold, not a business meant to stay small and pay its owner a living. The Angel Capital Association lists member groups nationally, and New York has several active ones.
5. Venture capital
Venture firms invest other people’s money in companies they believe can become very large, take board seats, and expect an exit through a sale or public offering within roughly a decade. Only a small minority of startups ever raise it; in 2025, 65.4% of US venture deal value went to AI companies, per the NVCA. See startup loans vs. venture capital, the list of venture capital firms in New York, and NYC startups that raised money in 2026.
6. Incubators and accelerators
Accelerators run for a fixed term, commonly three to four months, and many invest a small amount for equity, often 5% to 10%, ending with a pitch day. Incubators are open-ended and usually charge rent or a membership fee instead of taking equity. Judge a program by its mentors, alumni and the investors who show up at the end.
7. Government programs and grants
- Federal. The SBA does not lend directly to most businesses and does not give grants to start or expand one. It guarantees loans made by private lenders. Federal grants go mainly to research and development through SBIR and STTR.
- New York State. The New York Forward Loan Fund 2 offers loans of up to $150,000, alongside other Empire State Development programs.
- New York City. Small Business Services offers free financing assistance and the NYC Future Fund, which lends $25,000 to $500,000 with payments that adjust to revenue. AI and tech founders should also see AI startup financing in New York.
How to choose
- If the business will grow steadily and pay its way, favor debt and your own money. You keep the company, and the cost ends when the loan does.
- If it needs heavy spending before any revenue and could become very large, equity fits better, because there are no payments while you build.
- If you need under $50,000, start with savings, friends and family, a microloan or a Kiva loan before anything expensive.
- Compare offers by total cost and APR, not the monthly payment. The calculators do the conversion.
Where to go next
Frequently asked questions
What are the main ways to finance a startup?
Your own savings, friends and family, loans (bank, SBA, microloans, online lenders, credit cards), angel investors, venture capital, incubators and accelerators, and government programs and grants. Most founders combine two or three.
What is the cheapest way to finance a startup?
Your own money and customer prepayments cost nothing, and among outside money, nonprofit loans (Kiva lends at 0%) and SBA-backed loans, capped at 10% to 13.5% in October 2026, are the cheapest.
Should I use debt or equity to fund my startup?
Debt if the business can cover a payment from steady revenue, because you keep 100% of the company. Equity if it needs years of spending before revenue and could become very large, because there are no payments while you build.
Does the SBA give grants to start a business?
No. The SBA says it does not provide grants for starting or expanding a business. Its SBIR and STTR programs fund research and development.
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General information, not legal or financial advice. Lender terms change; confirm them with the lender before you apply.