🎯 In 30 seconds: Most local businesses start on savings, sometimes with a written loan from family. When outside money is needed, SBA microloans and CDFIs serve small and newer borrowers, SBA 7(a) loans cover most purposes up to $5 million, and 504 loans fund buildings and big equipment. Grants to start a business are rare. Merchant cash advances are the most expensive money most owners will ever be offered.
The options at a glance
| Source | Size | Best for | Watch out for |
|---|---|---|---|
| Personal savings | What you can lose | Testing the idea | Keep an emergency fund separate |
| Friends and family | Varies | Early equipment, first inventory | Relationships; put it in writing |
| Kiva (US) | $1,000–$15,000 | First small loan, thin credit | Crowdfunding steps take weeks |
| SBA Microloan | Up to $50,000 (average about $13,000) | Working capital, inventory, equipment | Can’t refinance debt or buy real estate |
| CDFI loans | Varies | Borrowers banks turn down | Rates vary by lender |
| SBA 7(a) | Up to $5 million | Working capital, equipment, real estate, buying a business | Personal guarantee, paperwork |
| SBA 504 | SBA-backed portion up to $5.5 million | Buildings, land, long-life equipment | Not for working capital or inventory |
| Equipment financing | Cost of the machine | Vehicles, ovens, washers | Total cost over the term |
Friends and family: write it down
Decide first whether it’s a loan or a share of ownership. For a loan, a one-page promissory note covers amount, interest rate, payment schedule, what happens if the business closes, and signatures. The IRS sets minimum interest rates for loans between related people, and very low-rate loans can create tax issues for the lender, so ask a CPA if the amount is large. Only take money the person could lose without it changing their life.
SBA loans, CDFIs and Kiva
The SBA doesn’t lend directly in most programs. It guarantees part of a loan made by a bank, credit union or nonprofit, which lets the lender say yes more often.
- Microloans are made by nonprofit intermediaries, up to $50,000 with terms of up to seven years, often with free business coaching attached.
- 7(a) is the general-purpose program, up to $5 million, including complete or partial changes of ownership.
- 504 loans come through Certified Development Companies. A typical structure: a bank lends up to 50% of the project, the CDC up to 40%, and you put in at least 10%. Terms are 10, 20 or 25 years at a fixed rate.
- CDFIs (Community Development Financial Institutions) are certified by the Treasury’s CDFI Fund to serve underserved communities. Many are loan funds or credit unions that also give technical help.
- Kiva US loans run $1,000–$15,000 at 0% interest with no fees and no collateral. You first raise from a small number of people you know during a private period of up to 15 days, then a public campaign of up to 35 days, all or nothing.
Rates change often, so ask each lender for the current rate, all fees and the total cost in writing. SBA’s Lender Match connects you with participating lenders.
Merchant cash advances: read this before signing
An MCA is not a loan in form: a company buys a slice of your future card sales and takes a daily or weekly cut until it collects a fixed amount.
Worked example: a $20,000 advance at a “factor rate” of 1.4 means you repay $28,000. If it is collected over about six months, you paid $8,000 to use $20,000, and the balance you owe drops as you pay, so the cost on the money you actually had averages well over 100% a year. A bank or SBA loan on the same $20,000 typically costs a small fraction of that.
The truth about grants
The SBA says plainly that it does not provide grants for starting and expanding a business. Federal grants that exist are for scientific research (SBIR and STTR), export help through state programs, and organizations that train entrepreneurs. Some cities, counties and states do run small grant programs, often for storefront improvements or specific neighborhoods, so ask your economic development office and SBDC. Anyone charging a fee to get you a “free government grant” is running a scam, and SBA only emails from addresses ending in @sba.gov.
The order most owners follow is in Main Street Business.