5 ways to fund a small business

Launching a small business requires ambition, persistence, confidence — and money. The amount of cash you need to get up and running varies wildly depending on the nature of your business. A small e-commerce store might only require a few hundred dollars to launch, while opening a cafe would cost considerably more. No matter how much you need, these methods can help you meet your fundraising goal.

Small business loans provide a straightforward way to get the money you need. Like other installment loans, most small business loans lend you a lump sum that you then pay back at regular intervals.

One potential drawback of getting funded by a business loan is that you may not meet the requirements set by a lender, particularly if you are just starting out — most lenders require you to have been in business for at least six months and have a minimum monthly revenue of at least $15,000.

That said, some lenders have more flexibility with these standards. Kiva, for instance, is a peer-to-peer lender offering microloans of up to $15,000. The loans come at 0% interest, however, business owners must crowdfund their loan first from friends and family, then from Kiva's larger network of individuals willing to contribute.

Kiva's only requirements are that you must be at least 18, live in the U.S., use this loan for business purposes and not currently be in foreclosure, bankruptcy or have any liens. These requirements, plus the fact you can crowdfund a 0% interest loan, make Kiva an appealing option if you're just getting started and can't meet the lofty revenue and business activity requirements set by many other lenders.

And if you have been in business for a few months, you should consider Credibly. This lender offers term loans, working capital loans and other funding options. You can apply for as much as $600,000 and the lender considers credit scores as low as 500. You'll also need to have been in business for a minimum of six months and have an average monthly revenue of at least $15,000.

A business credit card is a form of revolving credit that you can use repeatedly to borrow money as long as you're making the minimum monthly payment on your bill. But while this can be an easy way to fund business expenses, the interest rate on cards usually exceeds the rate charged by most reputable business loans, so you'll want to try to pay off your balance in full each month. 

A business credit card may prove more accessible than a loan if you're just starting your business. Many card issuers will use your personal credit history to decide on your application, which is helpful if your business credit history and score are thin. A card particularly well-suited to new business owners is the Capital One Spark 1% Classic. This card has no annual fee and you'll usually qualify with an average credit score (or better).

Another solid option is the Ink Business Unlimited® Credit Card (see rates and fees) since it also has no annual fee and offers a 12-month 0% intro APR period (after, 17.24% - 25.24% variable) — meaning you make purchases for your business and have 12 months to pay it back without being charged any interest. This can be particularly appealing if you need to spend more than just a few hundred dollars to start your business and don't want to get hit with interest before you can pay back all the money.

Before you apply, be sure to create a plan for paying back your balance before that 12-month introductory period is over.

A grant is a lump sum of money provided by an organization that doesn't need to be paid back (unlike a loan). Business grants are typically offered by government organizations, corporations and nonprofits. Grants can be used to cover many different kinds of expenses, including hiring employees, purchasing inventory, day-to-day operating expenses, marketing and more.

Depending on the grant, recipients will usually need to meet certain eligibility criteria to receive funding. Some examples include:

• Woman-owned businesses
• Minority-owned businesses
• Veteran-owned businesses
• Rural businesses or businesses in economically disadvantaged communities
• Businesses in certain industries like agriculture, technology or education

Grant funding can also range from a few hundred to hundreds of thousands of dollars.

Because grant money doesn't need to be paid back, your business won't have to worry about piling on debt before its doors are even opened.

You must fill out an application to be considered (and submit any other required material). However, some grant consideration processes are quite lengthy and it can take months before you receive an update on your application. Also, some private organizations only award a small handful of grants per year, meaning you can't depend on receiving a grant even if you do meet all the qualifications.

Here are some of the more popular, well-known grants for small businesses:

• FedEx Small Business Grant
• Amber Grant
• Freed Fellowship Grant
• Cartier Women's Initiative Program
• Restaurant Disaster Relief Fund

Bootstrapping is one of the most basic strategies for funding your business. It simply involves spending your own money — whether it's personal savings or income from your primary job — to get operations off the ground. It's by far the simplest way to get your business going, with the giant caveat that you need enough personal wealth to pull it off.

That's why bootstrapping works best for businesses with relatively low startup costs (like an e-commerce business with little overhead), rather than an enterprise that requires machinery, office space or multiple employees right off the bat. If you're saving up personal funds to use for your small business, consider putting that money in a high-yield savings account, which earns you much more interest than a traditional savings account. Granted, you may not earn hundreds or thousands of dollars in interest, but the interest you do earn may still help you reach your goal faster.

The Synchrony Bank High Yield Savings Account is known for offering a strong APY with no required minimum balance and no monthly fee. This means you won't be charged for not meeting a specific monthly balance requirement. You'll also receive an ATM card for even easier access to your money.

CNBC Select also considers the Capital One 360 Performance Savings™ account as another strong option. This account doesn't have a minimum balance requirement and doesn't charge a monthly fee. However, it does offer a checking account with ATM card access. This could be a good choice if you want a brick-and-mortar bank with thousands of physical branches across the U.S.

Crowdfunding involves raising small amounts of money from a large pool of people. You set a total fundraising goal and the small contributions add up to help you reach that goal. These fundraising campaigns typically come with a lime limit (often a few months), after which you'll often have to return any funds given to you if you fail to meet your goal.

Two common forms of crowdfunding include equity crowdfunding and rewards-based crowdfunding. With equity crowdfunding, individuals contribute money to a business in exchange for the possibility of gaining a small percentage of ownership in the business in the future. Equity crowdfunding is commonly used by young startups that aim to grow quickly and eventually raise venture capital funding, so most small businesses that intend on being self-sustaining don't opt for equity crowdfunding.

Rewards-based crowdfunding, on the other hand, is when a business offers contributors some sort of perk like branded merchandise or some other special free offer in exchange for their financial support.

Kickstarter and Indiegogo are two of the most popular rewards-based crowdfunding platforms. They both collect a 5% fee on successfully funded campaigns, but neither platform charges a fee if you don't hit your fundraising goal. Both Kickstarter and Indiegogo may charge a payment processing fee for every contribution or "pledge" paid to your campaign.

Be sure to keep these fees in mind when launching a crowdfunding campaign since they are usually deducted from your fundraised total.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of small business products. To research the best insurance companies, we compiled over 100 data points on more than a dozen insurance companies. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best commercial auto insurance companies. 

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