# Startup funding options: what each costs and where it goes wrong

**Short answer:** Own money and first sales come first. SBA offers no startup grants. A 7(a) start-up loan needs equity of at least 10% of total project costs (SOP 50 10 8.1, Sec. B, Ch. 1, Para. C).

Canonical page: https://www.sbaexpress.loans/guides/startup-funding-options/
Last checked: 2026-11-09

## On this page

- [Where startup money comes from](#where-startup-money-comes-from)
- [Options, with the cost and the trap](#options-with-the-cost-and-the-trap)
- [SBA loans for a start-up](#sba-loans-for-a-start-up)
- [Size your runway first](#size-your-runway-first)
- [When startup borrowing is a bad idea](#when-startup-borrowing-is-a-bad-idea)
- [Questions to ask any funding source](#questions-to-ask-any-funding-source)

## Where startup money comes from

This guide is for an owner whose business is new, or who is opening a second venture with no track record yet.

Start with your own money and your first customers. In the Federal Reserve Banks' 2026 survey, about a third of firms sought and received funding other than financing. Among those that received it, owner funds were the most common, followed by loans from family or friends.

Credit comes next, and a new business has fewer choices. Some lender policies do not allow loans to new businesses. SBA accepts that as a reason credit is not available elsewhere (SOP 50 10 8.1, Sec. A, Ch. 1, Para. H).

## Options, with the cost and the trap

- **Your savings and revenue.** No interest and no lender. The trap is a thin cushion. Keep money back for the months before sales catch up.
- **Loans from family or friends.** Flexible terms. The trap is the relationship. Put the amount, the rate and the repayment dates in writing. Suppose a relative lends $20,000 at an agreed 5% over five years. The payment is $377.42 a month, or $22,645 in total, which is $2,645 of interest.
- **SBA microloan.** Up to $50,000, repaid over up to 7 years. SBA says the average is about $13,000. A nonprofit intermediary makes the credit decision and sets the terms, and SBA caps the rate (13 CFR 120.707). The trap is a smaller amount than the business needs.
- **SBA 7(a) or SBA Express.** Possible for a start-up, with conditions. See the next section.
- **Equipment financing.** The equipment is the collateral, so a lender may lend against it. The trap is buying a machine before you have customers for it.
- **Business credit cards.** Fine for small purchases you repay quickly. The trap is carrying startup costs at a card rate.
- **Equity crowdfunding.** You sell ownership to many small investors. SEC rules let a company raise up to $5 million in 12 months through an SEC-registered intermediary, with required disclosures. The trap is the legal and reporting duty that comes with selling securities.
- **Grants.** SBA does not provide grants for starting and expanding a business. Its grants go to nonprofits and training groups. Research-based firms can look at the SBIR and STTR programs.
- **Retirement money (ROBS).** You roll retirement funds into a new corporation's plan, which buys its stock. The IRS calls these arrangements questionable. In its compliance project, the IRS found that most ROBS businesses had failed or were on the road to failure.

## SBA loans for a start-up

SBA does not bar start-ups from 7(a) loans, but it sets conditions (SOP 50 10 8.1, Sec. B, Ch. 1, Para. C).

- **Definition.** SBA treats a business as a start-up for equity purposes if it has been in operation for 1 year or less.
- **Equity.** A 7(a) start-up needs at least 10% of total project costs. On SBA Express, equity is left to the lender's business judgment (Sec. B, Ch. 2, Para. C.2).
- **Projections.** A Standard 7(a) lender relies on projections. They must show coverage of at least 1.15:1 within two years (Sec. B, Ch. 1, Para. C).
- **Guarantee.** Each owner of 20% or more of the business gives an unlimited personal guaranty (Sec. A, Ch. 5, Para. A.1).
- **Retirement plans.** SBA lets a lender lend to a business owned through a ROBS plan. The lender, not SBA, confirms the plan meets other regulators' rules (Sec. A, Ch. 2, Para. D).

Suppose an $80,000 start-up needs $20,000 for the build-out, $30,000 for equipment, $10,000 for opening inventory and $20,000 for working capital. The equity rule is at least 10% of total project costs. Applied here, $80,000 × 10% = $8,000. You supply at least $8,000, and the loan can cover up to $72,000. Whether a lender offers it varies by lender.

## Size your runway first

Suppose your costs are $8,000 a month and early sales will cover $3,000 of that. The monthly gap is $5,000. If you expect six months to break even, you need $5,000 × 6 = $30,000 just to reach that point.

Add a cushion for delays. A funding plan that works only if everything goes right will fail. Then compare what each source costs. Suppose you put $15,000 on cards at 24% and carry it for a year. Interest on the untouched balance is $15,000 × 24% = $3,600.

## When startup borrowing is a bad idea

- **Before you can show repayment from sales.** Projections are a guess. A payment is not.
- **With a personal guarantee you cannot afford to lose.** Guarantees reach personal assets. Of firms with debt in the Federal Reserve Banks' survey, 59% used one.
- **Offers that charge a fee for a grant.** The FTC says no government agency will ask you to pay to get a grant.
- **With retirement money before you read the IRS warnings.** The IRS cites promoter fees, valuation problems and missed filings.
- **Through a merchant cash advance.** Repayment comes out of sales, and a new business has few sales to repay from.
- **With no cushion.** Plan for slow months, not only the average one.

## Questions to ask any funding source

- What is the total I will repay, in dollars, and by when?
- What happens if sales come in late?
- Do I pledge my home, my equipment or my receivables?
- Do I guarantee the debt personally?
- Who else gets a claim on the business, and does that include a share of ownership?
- What fees come out of the amount I receive?

## Sources

- [Federal Reserve Banks, 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey (published March 2026)](https://www.fedsmallbusiness.org/2026-report-on-employer-firms)
- [SBA, Grants (sba.gov, read November 9, 2026)](https://www.sba.gov/funding-programs/grants)
- [SBA, Microloans (sba.gov, read November 9, 2026)](https://www.sba.gov/funding-programs/loans/microloans)
- [SEC, Regulation Crowdfunding (last reviewed April 24, 2025)](https://www.sec.gov/smallbusiness/exemptofferings/regcrowdfunding)
- [IRS, Rollovers as Business Start-Ups (ROBS) Compliance Project](https://www.irs.gov/retirement-plans/rollovers-as-business-start-ups-compliance-project)
- [FTC Consumer Advice, How Government Grant Scammers Try To Trick You (August 2022)](https://consumer.ftc.gov/articles/government-grant-scams)
- [SOP 50 10 8.1, Sec. B, Ch. 1, Para. C (p. 118); Sec. B, Ch. 2, Para. C (p. 127)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [13 CFR § 120.707(b); sba.gov/loans/microloans](https://www.ecfr.gov/current/title-13/section-120.707)
- [13 CFR § 120.707(b)](https://www.ecfr.gov/current/title-13/section-120.707)
- [sba.gov/loans/microloans (read November 8, 2026)](https://www.sba.gov/loans/microloans/)
- [SOP 50 10 8.1, Sec. B, Ch. 1, Para. C (p. 118)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. B, Ch. 2, Para. C.2 (Para. C begins p. 127)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. A, Ch. 5, Para. A.1 (p. 93); 13 CFR § 120.160(a)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. A, Ch. 1, Para. H, Credit Not Available Elsewhere (p. 37)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. A, Ch. 2, Para. D, 401(k) Plans Including Rollovers as Business Start-ups (ROBS) Plans (p. 47)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)