12 ways to fund your small business that don't involve venture capital

To Loren, a level-one business is at its earliest stage, often a mere concept that hasn't started earning revenue yet. Maybe you have a lifestyle blog that you want to turn into an online store and you need to hire a web developer or designer. 

Loren tells entrepreneurs to keep their jobs when they're first starting out, not only to pay their personal expenses, but to have a back-up income. "The most important thing is to never take out funding that you're not comfortable repaying," Loren said.

If you're confident you have the cash flow and income to pay your bills on time, a business credit card is one of the easiest ways to build up your business credit without having substantial revenue, since you can get approved with little to no profit. And it could help you access other types of funding in the future. It's relatively low-risk, plus many business credit cards come with benefits and perks, like miles, discounts, and cashback deals.

If you've never opened a business credit card before, your application will be based on your personal credit score. Loren suggests having a score of 650 or higher. A lower score doesn't mean you can't get approved, but it may come with higher interest rates and more aggressive payback terms. 

It can be very difficult to secure a business loan or line of credit when you're just establishing your business. Loren says these options usually require revenue, a personal guarantee, or some form of collateral. 

Personal loans from a bank are based on your income and personal credit, so they can be easier to get if you have a good credit score and high income. As long as the lender doesn't stipulate the loan for personal use only, it can help you afford retail or office space, initial supplies, or marketing. 

If you're willing to put your home up as collateral, there are two options to get some major capital. A home equity loan gives you access to all the funds at once, or a home equity line of credit (HELOC) disburses the funds incrementally.  

There are a couple big advantages to a home equity loan. First, you can get large amounts of capital at interest rates that are very low compared to most small business loans. Typically, home equity loans have long payback terms, up to 10 or even 30 years, so you have more time to pay them off.  

Some people prefer not to mix their personal assets with their business, so there's a lot to consider before taking out a home equity loan or line of credit. For example, if you co-own your home with a partner, they would be jointly involved in many of the decisions that impact your business.

Loren doesn't recommend crowdfunding to a business in its very early stages, because they effectively act as more of a marketing campaign than anything else. "It's not as simple as loading a page up on Kickstarter or Indiegogo and then expecting people just to flock to you because you have a good idea," Loren said.

Crowdfunding campaigns usually get funded in one of two ways: either you have an existing audience or you pay to access someone else's audience. If you're a new entrepreneur, you're likely in the latter group, without a major following on social media or in your industry. So you may have get publicists, influencers, and advertisements to promote your campaign — in that case, you're paying money to make money.

If you have the capital and an established audience to crowdfund, rewards-based campaigns, the most popular method, can help you identify and gain target customers.

Once you've established your business, it's steadily increasing revenue, and you're confident in your concept, pitch competitions are an accessible way to get cash that will help you continue growing. 

That means you've reached level two, where businesses are typically looking to expand and scale. Imagine a local bakery earning $5,000 in sales per month after two years. The shop owner may want additional funding to hire a couple employees or offer catering.

Business owners put a lot of effort and creativity into their business concepts, but Loren says the most important element is often overlooked. "You have to know your numbers," Loren said. For example, explain your customer acquisition costs or how much you profited from an advertising campaign compared to the budget you set for it. 

"If you can get those numbers in place, even on a small scale, it's going to be so impressive to the judges, because the majority of entrepreneurs who walk into that room are not prepared on that level," Loren said.

Business grants and government contracts can give you consistent cash and leverage your business to then pursue more traditional funding like investments. 

There are several grants the Small Business Administration (SBA) gives to small businesses, which you can learn more about here. Many opportunities are catered to small businesses owned by veterans or that can fulfill needs in research and development. 

If your business makes a product that could benefit the government, whether it's uniforms or office supplies, you could get some serious funding from a government contract. The US government requires federal agencies to list buying opportunities and consider bids from small businesses. 

This option does come with a lot of requirements, such as registering your business, compliance, and ensuring you have the supplies and resources to fulfill the contracts. You can find government contracts on databases such as governmentbids.com or through the Small Business Administration (SBA). 

Loren recommends businesses to get certified as woman-owned or minority-owned, if either of those apply to you, since the government has to meet minimum quotas for contracts within certain demographics.

If your business doesn't qualify for a grant or government contract, you can also apply for an SBA loan. They can take longer to disburse than personal loans, but are more accessible than private business loans and can have lower down payments.

Your business concept is part of the application, but numbers reign supreme. Loren says most institutions and underwriters consider the numbers as 80% of your application, if not more. They'll need to see your most recent tax return and business bank statement, your personal credit score should be average or above, and they may want to see capital projections for at least 12 to 36 months out. 

Your overall business history is also important. Strong numbers show underwriters that you have a good grasp on your plans for the capital, especially if you demonstrate a track record in producing revenue and flipping capital, like if you doubled your sales after launching an online shop for your retail store. 

Lastly, government institutions will look at how your business benefits the community. Are you going to create jobs in your neighborhood or town? How will your business impact the local economy? "They're not looking to just give solo entrepreneurs a bunch of money," Loren said.

If you use a payment processor for your sales transactions, sometimes companies like Paypal, Square, and Stripe will loan funds to their clients. Revenue generated through the company's payment processor is the most important factor for getting this type of loan. The company will also likely consider your personal credit score.

If you qualify for one of these loans, the company takes a percentage of your sales until you pay off the loan, with interest. Loren said many business owners like these loans because payback terms are more comfortable than traditional loans and are based on sales volume, rather than a weekly or monthly payment.

If you're not able to secure financing through a traditional bank, you may have better luck going to a private lender. Business loans are harder to get than personal loans, but they protect you from any personal liability should your business encounter any financial difficulties. 

As with any other loan, getting approved is not just about your business pitch. "Lenders who loan directly to businesses, they want to see traction," Loren said. So that revenue and credit history is just as important as with other funding options.

A business line of credit works much like the home line of credit mentioned above, but in most cases don't require collateral like real estate or inventory. Again, revenue and credit history are important to secure a line of credit, so usually this option is best for entrepreneurs who have been in business for a couple years. 

Level three brings us into investor territory, when your business is showing enough growth and revenue to start sourcing major funding. For example, the owner of a bed and breakfast could be making $150,000 in annual revenue and decide to open up a second location. 

The biggest advantage to investment is that, unlike loans and credit, there's nothing for you to repay — it's a cash-in transaction. But giving up equity means more people involved, so think of every investment as a relationship. Can you commit to this person asking about your revenue and weighing-in on decisions? 

The most important factor for you to prove to an angel investor is that they'll get a return on their money. Most are willing to take risks, but they won't make the commitment if you can't demonstrate a promising track record.

Angel investors can bring valuable mentorship and expertise to your business, since they are often experienced business owners and tend to invest within the industries they know. 

Venture capital will affect your small business much the same as angel investments — capital gained is equity earned. But apart from pitching an individual, you can seek venture opportunities from the many VC firms across the country, looking to invest in promising startups and small businesses.

Loren says many entrepreneurs ask her why they should seek capital of any kind if they can start their business from personal savings. She tells them: "You can do a lot more with $50,000 in capital and you can scale a lot faster, versus if you just did $100, $300, $500 every pay period, it's going to take a lot longer to build the business."