Unleashing the Potential: A Comprehensive Guide to 10 Types of Startup Capital for Entrepreneurs – 2025 Edition by Shopify

To get a startup off the ground, entrepreneurs need boundless energy, a sense of mission, a great idea—and money.

The term “startup capital” may evoke images of the TV program Shark Tank or venture capitalists in sleek Silicon Valley office campuses. In reality, entrepreneurs and startup founders have many different paths to secure funding for startup costs. Here’s what startup capital is, how it works, and what to consider before using it.

What is startup capital?

Startup capital refers to the financial backing a startup business needs to operate and grow in its early stages. It includes both the initial investment of seed capital and any additional rounds or series of fundraising. You can use startup capital for operating expenses like developing products, hiring staff, buying equipment, or just paying the bills.

Entrepreneurs can explore many different ways to fund their startup companies. Many consider business loans from banks or borrowing against a business line of credit, which gives you the flexibility to borrow only when you need funds. Some turn to community support via crowdfunding or friends and family. Others tap into personal sources, such as savings and retirement accounts or borrow against their homes.

Startup capital vs. seed capital

“Startup capital” and “seed capital” are often used interchangeably, but they have important differences. Seed capital is the very first startup funding a company receives to begin operations. Seed funding is often used for the initial costs of business operations like market research, product prototype development, and early marketing efforts. Startup capital, on the other hand, broadly encompasses all financial resources a growing business needs, including seed stage backing and later rounds of fundraising.

Both start-up and seed capital can come from various sources, such as angel investors, venture capitalists, investment banks, major corporations, private equity firms, or your own funds.

10 types of startup capital

1. Bank/credit union loan
2. SBA-backed loan
3. Business credit card
4. Crowdfunding
5. Grants
6. Personal savings
7. Friends and family
8. Venture capitalists and angel investors
9. Home equity loan
10. Retirement savings

A business owner can consider multiple ways to fund a new business, and you may use several simultaneously or at different stages of your business ventures. Each funding option has advantages and disadvantages, with some being more accessible to brand-new businesses than others:

1. Bank/credit union loan

Many financial institutions, such as banks, credit unions, and online lenders, offer small business loans to help start or expand your business. These funds may be a lump sum or a revolving line of credit you can use for any business expense. However, securing traditional loans can be challenging if you’ve been in business for less than a year. You will likely need to provide a personal guarantee, meaning you are personally responsible if your business can’t make loan payments.

2. SBA-backed loan

SBA loans are also issued by traditional banks, credit unions, and online lenders—but with a US Small Business Administration guarantee, which may help new businesses qualify more easily. These loans range from $50,000 microloans to as much as $5 million for larger projects. They often come with benefits like low down payments, competitive interest rates, and sometimes minimal collateral requirements—or are assets the lender can take if you don’t repay the loan. But the approval process is often lengthy and complex, and like traditional bank loans, you will need to provide a personal guarantee.

3. Business credit card

A business credit card can be a simple way to fund startup costs, especially if you have excellent personal credit. They work similarly to personal credit cards and typically provide features to help you track purchases, manage employee cards, and download financial data. But just like that personal credit card, it’s easy to run up high-interest debt if you’re not careful. You’ll need to generate revenue sufficient to pay the monthly bill.

4. Crowdfunding

Crowdfunding involves raising capital from many individual donors via websites like Kickstarter and Indiegogo. You might offer donors a reward (like a product) or provide a stake in the company through equity crowdfunding. This approach not only raises funds but also helps validate your business concept and build an early customer base.

5. Grants

Local, state, and federal governments may offer various small business grants that don’t require repayment. Many aim to fund businesses founded by underrepresented groups like minorities or women, those located in economically depressed areas, or specific industries, like agriculture. Check state and local government sites, local business advocacy groups, and the federal grants database at grants.gov. Note that competition for these grants is often intense, particularly for new companies with unproven business models.

6. Personal savings

Using only your personal savings is called bootstrapping, from the adage “pulling yourself up by your bootstraps.” If you have enough savings, using your own money may let you avoid taking on interest-bearing business debt. However, financial planners generally recommend you maintain at least three to six months of living expenses in an emergency fund before investing personal savings in a business venture.

7. Friends and family

If friends and relatives have the means, they might consider lending you money for your business. If you go this route, clearly define expectations on both sides and create a formal agreement that outlines terms and conditions. While this funding source can be more accessible and flexible than traditional options, mixing personal relationships with financial arrangements requires careful navigation.

8. Venture capitalists and angel investors

Angel investors are wealthy individuals who provide seed money using their own funds, while venture capitalists invest in early stage businesses on behalf of venture capital firms. Generally, these professional investors are providing startup capital in exchange for an equity stake in high-growth companies. You may attract investors and receive equity financing with a unique idea and solid business plan; however, only a very small percentage of startups receive venture capital funding, with estimates ranging from 0.05% to 1%.

9. Home equity loan

If your company can’t qualify for a standard business loan, you might consider a home equity loan or home equity line of credit (HELOC). How much funding you receive depends on your home value. Lenders usually let you borrow as much as 80% to 90% of your home’s market value—minus your outstanding mortgage balance. While these loans often have lower interest rates than a standard business loan, they put your home at risk—if you can’t make your payments, the lender can foreclose on your property.

10. Retirement savings

If other funding sources aren’t possible, another alternative is dipping into your retirement savings. Withdrawing from an individual retirement account (IRA) incurs income taxes that can range from 10% to 37%—plus a 10% penalty if you’re younger than 59 and a half years old. Some 401(k) plans let you borrow up to 50% of your account value for any purpose (maximum $50,000 within 12 months), with repayment plus interest required within five years. Carefully evaluate the impact of withdrawals as part of your comprehensive retirement planning.

Advantages and disadvantages of startup capital

No matter the source of your funding, raising startup capital has advantages and disadvantages:

Advantages

• Access to critical financial resources. Startup capital is what gets your business up and running, letting you invest in operational necessities like product development, research, market research, and staff.

• Ability to scale faster. When you have multiple, flexible funding sources, you can pounce on opportunities to expand your business.

• Reduced personal risk. If you secure funding externally, you may avoid putting personal assets—like your savings, your retirement accounts, or your home—at risk in the event of business setbacks.

Disadvantages

• Less control. Accepting money from equity crowdfunders and investors typically means providing them with shares in your company. Many investors want a say in decision-making and strategic direction, which can limit your freedom as a founder.

• Debt. If you raise funds using credit cards and loans, you typically will have to repay that money with interest—which can add significant financial pressure and limit your ability to reinvest any earnings into the business.

• Pressure to perform. When you raise money from external investors, you’re beholden to others. Investors typically expect a return on their investment, which can add pressure and stress, and if you miss a growth milestone, you may have trouble raising more capital in a future funding round.