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What Are the Different Types of Startup Funding?

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  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 17 April 2014
  • Copyright Protected:
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    Conjecture Corporation
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There are many different sources of startup funding a person can use. Among the most common and easy to obtain are funds from one’s own bank account, credit cards, and loans from friends and family members. A person who is in need of startup funding can also seek loans from banks and other lending institutions. Peer-to-peer loans might also prove a good source of money for starting a business. Additionally, a person can consider seeking money from angel investors and venture capitalists in an effort to obtain money for starting a business.

One of the easiest ways to get money for startup funding is from one's own resources. For example, an individual may use money from his own savings account when he wants to start a business. He may also use money from credit card accounts he holds; it is important to note, however, that this money doesn’t actually come out of the user's pocket. Instead, it is loan money he will eventually have to repay. Likewise, he will typically have to pay interest on the money he spends on a credit card.

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If an individual has exhausted his own resources for startup funding, he might be able to turn to those who care for him for help. If an individual has a good idea for a business, he may convince friends and family members to loan him money to get started. If his loved one’s are uncomfortable about lending the money, he may ask them to invest in his business endeavors instead. With this sort of arrangement, the aspiring business owner can provide a portion of his eventual earnings in exchange for the investment.

Often, individuals seek funding from banks and other financial institutions when they want to start a business. This type of startup funding is referred to as a business loan. Most lending institutions prefer to lend money to individuals who have solid business plans and good credit. If an individual has trouble qualifying for this type of startup funding, however, he might try offering collateral or securing a cosigner to make himself a more attractive loan applicant.

Sometimes peer-to-peer lenders are a good option for those seeking startup funding. With this type of situation, a person borrows the money he needs to start a business from a person who can be considered his peer, rather than a financial institution. It is sometimes easier to qualify for a loan through a peer-to-peer network than it is to qualify through a traditional lending institution.

Venture capital and angel investors are also sources of startup funding. Venture capitalists are entities that combine money from investors and then invest this money in companies they think have a good chance of success. Sometimes these investors help with developing the company as well. An angel investor is a person who invests in a company with the plan of earning more on this investment than he could with other investment options. Venture capitalists often make larger investments that angel investors do, but both typically expect a significant return on their investments.

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