5 ways to fund your startup

Use these tips to decide which option might be right for you


ENTREPRENEURSHIP HOLDS A SPECIAL APPEAL for many women. “Being your own boss is a path to both pursuing a passion and achieving better work-life balance,” says Sharon Miller, head of small business at Bank of America. But, she notes, it also can present some special hurdles.

While more than three-quarters of entrepreneurs rely on personal savings or income to fund their startups, according to SCORE, a small business resource partner of the Small Business Administration (SBA),1 there generally will come a time when outside financing is required, and securing that financing can be tougher for women. “Nearly half of women entrepreneurs don't have the same access to capital as men,” Miller notes. For instance, only 2.3% of venture capital (VC) funding goes to women-led startups.2

A woman giving a presentation to several other people; below it is an infographic titled, “Where the money is: By the numbers.” Stats are listed below: “78% of both men and women business owners [bolded] rely on personal savings or income [not bolded] to fund their startups,” with the “78%” in a blue circle. Below that and to the left, is the stat, “More than 57% The amount of Small Business Administration [bolded] microloans that go to women entrepreneurs,” with the “More than 57%” in a red square. To the right is the stat, “2.3% The percentage of venture capital (VC) dollars that go to women-founded companies. But that amount is slowly rising: [bolded] VC funds that went to women-founded companies [not bolded] in: 2019” with a red arrow pointing to “$3.3 billion” and “2020” with a red arrow pointing to “$3.6 billion.” With a thin black line separating both of those numbers, one on top of the other. Below that section of the infographic is stat, “[bolded] For every dollar received [not bolded] by Venture Capital funding, here’s what is generated by:” A curved carrot around this text points to two stats on top of each other, separated by a black line: “Women-owned startups: 78 cents,” with the number in a blue circle, and “Startups founded by men: 31 cents,” with number in a dark blue circle. The stat in the last section reads, “A majority of women entrepreneurs rate their [bolded] current financial situation [not bolded] as:” with “strong (39%)” on top of “fair (53%)” and separated by a black line like the others. Each stat in the infographic is separated from the others with a thin black line. Sources read, “Sources: SCORE, ‘Women’s Entrepreneurship,’ Spring 2018; National Women’s Business Council, 2020 Annual Report; PitchBook/NVCA, “Venture Monitor Q2 2021”; Boston Consulting Group, June 2019; Bank of America Business Advantage 2021 Women Business Owner Spotlight.”

But other funding options do exist, including loans and grants earmarked for women-owned businesses. And some venture capital firms specialize in funding women entrepreneurs. Below is a rundown of five common funding sources, along with the pros and cons of each. Discuss them with your financial advisor before you try to launch your new business idea.

Sharon Miller headshot“Being your own boss is a path to both pursuing a passion and achieving better work-life balance.”

— Sharon Miller, head of small business at Bank of America

Tapping your personal assets

Relying on personal assets or income from another job are the most common sources of initial funding for the majority of entrepreneurs.1 If you’re dipping into savings, keep in mind that you should still try to maintain a healthy emergency fund — ideally a year’s worth of living expenses — because you may not know how soon you will be able to draw a salary from your business, says Merrill Financial Advisor Judith Lee. If you’re near retirement age, tapping your own assets could be especially risky, because the time to rebuild them is shrinking.

More than a third of women small business owners also use credit cards to help cover operating expenses3. But double-digit interest rates on balances can be an expensive way to fund a start-up, notes Lee. Alternately, you could consider leveraging assets you have in a brokerage account as collateral for a loan. “That allows you to have access to the funds on a short-term basis without having to liquidate your investments and losing out on potential earnings growth,” Lee explains. Another possibility to discuss with an advisor might be to borrow against the value of your home with a home equity line of credit (HELOC). Just remember that if you can’t repay a HELOC, you might risk losing your home.  Be sure to talk to your advisor about whether self-funding your business with personal assets will still allow you to meet your other financial goals. 

Accepting funding from friends and family

The second biggest source of initial startup money, according to SCORE, is gifts from friends and family members. These sorts of arrangements can work well, but they can sometimes come with strings attached. Be clear about how you might repay such generosity, and be sure to document in writing promises made. Jeni Britton, founder and chief creative officer of Jeni’s Splendid Ice Creams, recalls considering taking a $30,000 loan from family friends when she wanted to start her business. “We were told, ‘Don't take money from anyone right now, because if you do, they will own your company. Exhaust every other option first.’” So Britton applied for an SBA loan. Six months later, the loan was approved and she opened her doors for business. Today, Jeni’s Splendid Ice Creams sells millions of pints each year.  

Applying for bank loans

At some point, like Britton, you may want to apply for either a personal loan or a federally backed SBA loan, available through many banks and credit unions. They’re the third biggest source of startup funding.1 SBA loans offer some of the lowest interest rates available and allow you to retain full ownership of your company.

To get a personal loan from a bank, you’ll usually need a sterling credit record as well as collateral, typically a real estate asset. SBA loans have broader eligibility requirements; businesses typically not approved for traditional loans can sometimes qualify, says Nathalie Molina Niño, author of Leapfrog: The New Revolution for Women Entrepreneurs. However, you’ll likely still need to have collateral or a down payment, and the approval process can be slow. You’ll also need to start repaying the loan right away, which can be tricky if you’re just starting out.

Another potential source of affordable funding, not to be overlooked, is a community development financial institution (CDFI). Interest rates and fees on CDFI loans are generally comparable to bank loans, but their mission is to serve low-income or underserved people and communities. In addition to credit, CDFIs offer mentoring and useful financial advice. Bank of America, as one example, partners with CDFIs across the U.S. to connect women entrepreneurs to capital.

Crowdfunding your business

While it’s the least common source of money, crowdfunding has its place in the mix. Virtual fundraising campaigns on popular crowdfunding sites and a few platforms explicitly for female entrepreneurs have become increasingly popular. Crowdfunding has a low barrier to entry and can help you spread the word about your business and build a customer base. While the amounts raised by traditional crowdfunding are generally small — under $10,000 — a newer type of crowdfunding that allows you to sell shares in your business, known as equity crowdfunding, tends to raise larger amounts. Either way, you’ll need sharp promotional skills to draw attention to your business, and you’ll also pay fees, which differ depending on the site.

Approaching venture capital firms

These firms, which invest in start-ups in exchange for equity or partial ownership, can offer a big influx of cash — and the means to quickly grow the business. But women, especially women of color, have historically received only a sliver of VC funding, notes Molina Niño, adding that VC firms tend to not get deeply involved in day-to-day operations yet aim for quick returns.

“Make sure that you can explain how you’re going to serve your customer or solve a new issue and differentiate yourself.”

— Sharon Miller, head of small business at Bank of America

If you pursue VC funding, you’ll need a slick marketing presentation, or pitch deck, that includes detailed explanations for how and when your business will become profitable. One statistic that might be useful to note in your pitch: Women-owned startups generate 78 cents for every dollar of VC funding they receive, compared to just 31 cents for startups founded by men.4

Try approaching any of the dozen or more VC funds seeking to empower women entrepreneurs who have good ideas and strong business plans. One encouraging sign: According to the 2021 “All In: Female Founders in the U.S. VC Ecosystem” report from PitchBook, the number of women general partners in VC firms is rising — climbing from 12% in 2019 to 15.4% in 2021.2

Regardless of how you raise funds, it’s critical that your business plan is rock solid and articulates your goals, says Miller. “Make sure that you can explain how you’re going to serve your customer or solve a new issue and differentiate yourself,” she says. And don’t give up. “When you are an entrepreneur, you're betting on yourself,” Miller adds. “Take your vision and make it a reality!”

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1 SCORE, “The Megaphone of Main Street, Startups, Fall 2019,” September 9, 2019.

2 PitchBook/NVCA, “Venture Monitor Q2 2021.”

3 Hiscox, “Women entrepreneurs are confident and prepared,” 2020.

Boston Consulting Group, “Why Women-Owned Startups Are a Better Bet,” June 2018.

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