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• Source of Funds Examples in a Business Plan: 8 Suggestions
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A solid business plan is one of the most important documents you’ll need to create for your company. This document provides a roadmap for your company’s future developments. However, no growth can occur without a sufficient amount of working capital. That’s why your business plan should include a source of funds section – it can remind you how to maintain the cash flow your company needs.

There’s another reason this part of your business plan matters. It can show certain lenders how much money you need beyond what the funding sources in your business plan can get you. That said, not all lenders will require you to share a business plan. For example, SmartBiz’s loan approval requirements don’t include business plans among the necessary paperwork. Either way, below are some source of funds examples in business plans.

What is a business plan?

A business plan is a document that guides your company’s growth. It helps define your business goals and provides a clear overview of how you’ll achieve them. You can also use it to plot out your marketing, operational, and sales approaches. Your business plan can be the foundation of a strategy to minimize risk and maximize growth.

Another reason why solid business plans are essential is that you’ll often need to provide them as you apply for business loans. Business plans provide an in-depth look at a company’s plan for profits, so lenders can more easily judge the borrower’s likelihood of repayment. Lenders are much more likely to finance borrowers whom they believe can pay back the loan amount in a reasonable timeframe.

8 source of funds examples

Having a source of funds – sometimes several sources of funding – is vital to growing your business . Common funding options include business loans, and sometimes, to qualify for them, you must show lenders your other funding sources. Understanding the below source of funds examples in business plans can help you better structure yours.

1. Personal savings

When you’re just getting your business off the ground, sometimes, the fastest way to fund it is directly from your current savings. However, entwining your personal savings into a company that could fail is a risky prospect – but it also shows commitment. Lenders and investors often respond well to a borrower who’s ready to go the distance with their ideas.

2. Money from friends and family

Money from family and friends, which you’ll also see called “love money,” is a viable source of funds in your business plan. However, just as it’s risky to get your own money wrapped up in a business, it’s dangerous with other people’s finances too. Plus, accepting money from a loved one can come with drawbacks. For starters, not everyone in your life has much to spare in the first place. Furthermore, if you borrow money from friends or family and you can’t repay it, the relationship could be damaged.

3. Federal and private grants

Occasionally, your business model can put you in line for federal grants. That said, rare is the business that qualifies for federal grants – technically, the government does not provide grants for small businesses growth. However, private companies ranging from FedEx to the NBA offer grants to small businesses that fit certain criteria. If there’s a chance your company could fit these criteria, you can include private grants as sources of funding in your business plan.

4. Share sales and dividends

Selling shares of your company to investors – as in, anyone who buys stocks – falls under a category of funding known as equity financing. This arrangement can be lucrative, which is a main reason why you see so many companies having initial public offerings (IPOs).

However, equity financing has a few drawbacks. For one, you’ll no longer have complete control over your company's future, as stockholders dilute your ownership. Additionally, you’ll have to account for dividends in your financial planning. You pay these sums to your shareholders every quarter.

5. Venture capital

If you need a large amount of cash, venture capitalists can be a viable option. Typically, though, venture capitalists are only interested in funding startup businesses in the tech sector with high growth potential.

Venture capital is a high-reward but high-risk funding source. It often requires you ceding a certain amount of ownership – and thus control – of your business. Furthermore, if your business fails, you may still need to repay any venture capitalists or firms that have funded your operations.

6. Angel investors

An angel investor is a wealthy private individual who invests in small businesses to help them get off the ground. They tend not to offer as much starting capital as a venture capitalist, but they can make up for the smaller amount with experience. Angel investors are often experts within a specific industry and put money back into it by investing in newer businesses within that sphere.

Although you’ll have to give an angel investor some control over your company, their experience and network can help your business grow. Additionally, the word “angel” in their name reflects that they typically don’t ask for their money back if your business fails. That makes them a safer bet than venture capitalists.

7. Business incubators

Unlike the previous funding options, a business incubator doesn’t offer direct monetary support. Instead, incubators help fledgling businesses thrive by allowing them into their workspace and letting them share resources as they get started. This type of funding is indirect – you’ll rarely get direct cash infusions, but you’ll get resources that would otherwise cost you money. It’s common in high-tech industries such as biotechnology, industrial technology, and multimedia.

8. Bank loans

Bank loans probably ring a bell for you. When a current or aspiring small business owner needs additional funds, these loans are often the first thing that comes to mind. They’re among the most in-demand funding options available given their large funding amounts, long-term repayment periods, and low interest rates . However, their high amounts introduce lender risk that can make them difficult to obtain. To minimize risk, most lenders impose strict qualification criteria that you might not make.

Why do you need to provide sources of funds in your business plan?

Providing a source of funds in your business plan paves a path toward obtaining and using your funding. Knowing where your money is coming from and what you’re spending can help with strategic financial planning. It also minimizes the chances of your business partners spending money the company doesn’t actually have.

In a lending context, your sources of funds may help you qualify for any loans you need in the future. Depending on the funding sources you’re using, lenders may view you as someone able to repay the debt financing they offer. For example, using personal savings shows your commitment to your business, meaning you’re likely a reliable borrower who won’t flake on a loan. You’ll show your commitment to your company and your business at the same time.

Parting thoughts

Reliable funding sources are essential to achieving your company’s objectives, and their presence in your business plan can help you obtain more funding. Namely, certain entities that offer small business loans require business plans as part of the borrower approval process. When your approval plan clearly shows why you need the loan money and how else you’re getting funding, lenders may trust you more.

However, certain lenders don’t require business plans. In fact, when you apply for SBA 7(a) loans , bank term loans, or custom financing through SmartBiz ® , you don't need a business plan. Check now to see if you pre-qualify * – the business funding you need might be closer than you think.

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The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

Sources of Funding

Different ways to obtain financing

What are Sources of Funding?

Companies always seek sources of funding to grow their business. Funding, also called financing, represents an act of contributing resources to finance a program, project, or need. Funding can be initiated for either short-term or long-term purposes. The different sources of funding include:

• Retained earnings
• Debt capital
• Equity capital

Summary 

• The main sources of funding are retained earnings, debt capital, and equity capital.
• Companies use retained earnings from business operations to expand or distribute dividends to their shareholders.
• Businesses raise funds by borrowing debt privately from a bank or by going public (issuing debt securities).
• Companies obtain equity funding by exchanging ownership rights for cash coming from equity investors.

Retained Earnings

Businesses aim to maximize profits by selling a product or rendering service for a price higher than what it costs them to produce the goods. It is the most primitive source of funding for any company.

After generating profits, a company decides what to do with the earned capital and how to allocate it efficiently. The retained earnings can be distributed to shareholders as dividends , or the company can reduce the number of shares outstanding by initiating a stock repurchase campaign.

Alternatively, the company can invest the money into a new project, say, building a new factory, or partnering with other companies to create a joint venture.

Debt Capital

Companies obtain debt financing privately through bank loans. They can also source new funds by issuing debt to the public.

In debt financing, the issuer (borrower) issues debt securities, such as corporate bonds or promissory notes. Debt issues also include debentures , leases, and mortgages.

Companies that initiate debt issues are borrowers because they exchange securities for cash needed to perform certain activities. The companies will be then repaying the debt (principal and interest) according to the specified debt repayment schedule and contracts underlying the issued debt securities.

The drawback of borrowing money through debt is that borrowers need to make interest payments, as well as principal repayments, on time. Failure to do so may lead the borrower to default or bankruptcy.

Equity Capital

Companies can raise funds from the public in exchange for a proportionate ownership stake in the company in the form of shares issued to investors who become shareholders after purchasing the shares.

Alternatively, private equity financing can be an option, provided there are entities or individuals in the company’s or directors’ network ready to invest in a project or wherever the money is needed for.

Compared to debt capital funding, equity funding does not require making interest payments to a borrower.

However, one disadvantage of equity capital funding is sharing profits among all shareholders in the long term. More importantly, shareholders dilute a company’s ownership control as long as it sells more shares.

Other Funding Sources

Funding sources also include private equity, venture capital, donations, grants, and subsidies that do not have a direct requirement for return on investment (ROI), except for private equity and venture capital . They are also called “crowdfunding” or “soft funding.”

Crowdfunding represents a process of raising funds to fulfill a certain project or undertake a venture by obtaining small amounts of money from a large number of individuals. The crowdfunding process usually takes place online .

Related Readings

Thank you for reading CFI’s guide to the Different Funding Sources. In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

• Free Fundamentals of Credit Course
• Cash Flow from Financing Activities
• Debt vs Equity Financing
• Revenue-Based Financing
• Top Banks in the USA
• See all accounting resources

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How to Create a Sources and Uses of Funds Statement

• The Sources & Uses of Funds Statement
• Steps in Creating the Statement
• Sample Statement

You might have seen the term "Sources and Uses of Funds Statement" on a list of financial spreadsheets needed for a bank loan and you wondered what it is. This statement is sometimes called a source and application of funds statement. Some banks require this statement as part of the application process for a business loan . 

Large public companies include a Sources and Uses of Funds statement in their annual reports, but even small businesses can find sources and uses statement helpful. The worksheet discussed here is a simplified, slightly different version that you can use to show a lender how much you need for startup financing and how much collateral you will contribute.

Lenders like the Sources and Uses statement because it is an excellent summary of your financial plans, showing where the money you need is coming from and what it will be used for. 

Even if you don't need a Sources and Uses of Funds Statement for a lender, consider putting one together. It's an excellent way to strategize on creative ways to finance your business startup or expansion. 

The Sources and Uses of Funds Statement

As you can tell from its title, a Sources, and Uses of Funds statement shows the reader the information needed to get the big picture of: 

Uses of Funds: The money needed for various purposes for business startup, including

• Beginning quantities of supplies, equipment, and furniture
• Purchase of building and land
• Initial startup costs for rent deposits for rent, initial payments for insurance, etc.
• Other working capital needs

If your business is considering expansion, the "uses" part of the statement would show the build-out or improvements you will need, and additional capital assets you will need to buy. 

Sources of Funds: Where the money for all funding is going to come from. A traditional statement might include sources like:

• Sales of assets
• Owner contributions
• Sales of stock
• Cash income  

You will probably have a mix of different funds for different parts of your plan. For example, you may be contributing office furniture yourself, getting a loan for purchasing major equipment, and getting aline of credit for working capital. 

The difference between the uses of the funds and the sources is what you are asking a lender to provide.

Steps in Creating a Sources and Uses of Funds Statement

The format of the Sources and Uses document seems backward: First, the uses of funds are described, then the sources, as if you were talking to a lender about your plans. 

Uses of Funds

Section One is "Uses of Funds." ​The total of startup funds and working capital needs is the total Uses of Funds.

In this section, use the subtotals for each section in your Startup Costs Worksheet : Facilities, Equipment and Vehicles, Supplies and Advertising, and Other Startup Costs. Total these numbers

In the Uses of Funds section, include an estimate of

Capital needed, for investments in buildings, equipment, or vehicles

Working Capitalneeds, the amount of money you need to have on hand to pay bills while you are establishing your business.

When you create a uses statement, think about what your company needs to create a "profitable and sustainable" business or project. It doesn't matter how the items would be paid for, just that they are needed.  

Sources of Funds

In the Sources of Funds section, list all the sources of funds you have for startup. It might include

• Income from shareholders who are investing in your business
• Collateral for the loan you are seeking or from a co-signer
• Other personal sources like equity in your home, a savings account, or an IRA (you don't have to cash it in, just be willing to let the bank take it if you can't pay on your loan).

It's a good idea to include a detailed sheet to explain the specifics of contributions.

Sample Sources and Uses of Funds Statement

This statement does not have to be complicated; it is just meant to show a lender how much you need for financing, what you have as collateral and the amount of loan you need. In some cases, you may not actually be putting the money into the business (if you have an IRA, for example); you are just showing the bank what you can do if you are in trouble on the loan.

The Uses section is always shown first, then Sources of Funds. The difference between the total Uses of Funds from section one and the total collateral you are providing equals the amount of financing needed. The Sources total must match the Uses total.

Here's a sample Sources and Uses of Funds Statement for a project that involves buying and renovating a building.

Creating Your Sources and Uses of Funds Statement

As you work on putting together this statement, you might want to be creative to find more funding sources. For example, you could do a crowdsourcing campaign (like Kickstarter) for a new product, or find an SBA loan  guarantee to help you secure that loan. 

Don't forget to include the costs of obtaining these funding sources in your uses of funds section. 

Be as accurate and complete as you can be when preparing your Uses of Funds section. Leave no question unanswered. Lenders don't like surprises. 

Purdue Center for Commercial Agriculture. " Sources and Uses of Funds Statement ." Accessed Jan. 7, 2021.

OPIC.gov. " Attachment1: Creating a Sources and Uses Statement ." (Download.) Accessed Jan. 7, 2021.

OPIC.gov. " Attachment1: Creating a Sources and Uses Statement ." (Download.) Accessed Jan 7, 2021.

5 Common Funding Sources For Start-Ups & Growth

Written by Dave Lavinsky

If you want to be successful in business, it is crucial to determine when, where, and how to obtain the startup funding you need. Whether you need $1,000 or $1 million to start or expand your business, if you can’t raise money, you can’t build the business you want.  

Before You Look For Funding

Before you look for funding, you need to create a solid business plan. In addition to explaining your business and your strategy for success, your plan must determine how much money you need and how it will be used.

Also, it’s very important for you to understand the timing of the funding. For example, do you need all the funding now (e.g., to build out a location), or can you receive your funding in stages or “tranches.”

The amount of funding you seek will affect the source of funding you approach. For example, if you require $250,000 in funding, angel investors are more applicable than venture capitalists. If you need $5 million, the opposite is true.

Secure Funding Quickly!

The key to securing funding for your business is having the right business plan. With Growthink’s Ultimate Business Plan Template you can complete your plan in just hours and secure funding quickly!

What is The Most Common Source of Funding for Entrepreneurs?

Personal financing is the most common funding source for entrepreneurs. This includes using both your personal savings and personal credit cards to initially fund your business. Other key funding sources, as discussed below, include business loans, friends & family, angel investors and venture capitalists.

What are the Different Ways Businesses can Find Start-up Funds?

While I have identified 41 sources of funding for your business , below are the 5 most common.

1. Funding from Personal Savings

Funding from personal savings is the most common type of funding for small businesses. The two issues with this type of funding are 1) how much personal savings you have and 2) how much personal savings are you willing to risk.

In many cases, entrepreneurs and business owners prefer OPM, or “other people’s money.” The four funding sources below are all OPM sources.

2. Business Loans

Debt financing is a fancy way of saying “loan.”  Credit unions and banks offer funding that you must repay over time with interest. This can come in the form of a personal loan, a traditional business loan, or different loans based on the type of asset you need to purchase (e.g., for equipment, land, or vehicles).

You must prove to the lender that the likelihood of you paying back the bank loans is high, and meet any requirements they have (e.g., having collateral in some cases). With a bank loan, you do not need to give up equity. However, once again, you will have to pay interest along with the principal.

3. Friends & Family

A big source of funding for entrepreneurs is friends and family. They can provide funding in the form of debt (you must pay it back), equity (they get shares in your company), or even a hybrid (e.g., a royalty whereby they get paid back via a percentage of your sales).

Friends and family are a great source of funding since they generally trust you and are easier to convince than strangers. However, there is the risk of losing their money. And you must consider how your relationship with them might suffer if this happens.

4. Angel Investors

Angel investors are generally wealthy individuals like friends and family members; you just don’t know them (yet). At present, there are about 250,000 private angel investors in the United States that fund more than 30,000 small businesses each year.

Most of these angel investors are not members of angel groups. Rather they are business owners, executives and/or other successful individuals that have the means and ability to fund deals that are presented to them and which they find interesting.

Networking is a great way to find an angel investor for your business.

5. Venture Capital

Venture capital funding is a suitable option for businesses that are beyond the startup period, as well as those who need a larger amount of venture capital for expansion and increasing market share. Venture capitalists and VC firms are professional investors that are more involved with business management, and they play a significant role in setting milestones, targets, and giving advice on how to ensure greater success.

Venture capitalists invest in new businesses and medium-sized businesses they believe are likely to go public or be sold for massive future business profits. Specifically, they want to fund companies that have the ability to be valued at $100 million or more within five years. They also go through an expensive and lengthy process of deciding on the best business to invest their venture funds. Hence, the application process and approval usually takes several months.  

What Are the Three Major Sources of Funding for New Businesses?

The three major sources of funding for new businesses are personal funds, loans and credit, and venture capital. Personal funds involve using one’s own savings or assets to finance the startup. Loans and credit options are sought from banks, credit unions, or online lenders to obtain the necessary capital. For high-growth potential startups, venture capital firms and angel investors can provide funding in exchange for equity. Other funding options like crowdfunding, grants, or government assistance may also be explored based on the specific business and its needs.  

The Bottom Line

As you search for the best funding options for your start-up business or to expand your existing business, you will discover that some sources are more complicated and time-consuming while others may offer a very small amount. While the five sources mentioned above are the most common, there are other ways of obtaining the financing you need including government programs including grants , crowdfunding sites, business credit cards, or a line of credit from a bank just to name a few.

Choosing an inappropriate type of funding can lead to unfavorable outcomes such as feuds between the lender and business owner, shift of control, waste of resources and other negative consequences.

With this in mind, you should study the benefits and drawbacks of each financing option and select the ideal one that will help you meet your business goals. With the right sources of money, the sky’s the limit for your business.

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How to Finance a Business: 4 Options to Consider

• 04 Aug 2020

In entrepreneurship, the old adage “you must spend money to make money” often rings true.

Once you’ve developed an innovative business idea , identified a market need, and created a value proposition , you need to acquire funding to get your company up and running.

The key to financing a business is keeping expenses as low as possible. You also want to ensure invested money is used to gain insight into how to proceed.

In the online course Entrepreneurship Essentials , taught by Harvard Business School Professor William Sahlman, entrepreneurship is described as the process of "spending money to produce information about future possibilities."

For instance, using funds to rent a beautiful office may be tempting, but leveraging it to run tests, conduct market research, or identify more efficient means of production can help you learn about your product, pivot accordingly, and expand your company’s growth potential.

Here’s a guide for assessing startup costs and expenses, along with four business financing options to consider.

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How Difficult Is It to Fund a Startup Business?

Securing adequate funding for your business can be challenging. However, it’s important to remember that starting your own business is a large investment that should be given an appropriate period of time to succeed.

Often, new businesses need to raise funding quickly and efficiently to properly grow and thrive in their given market, but it can be difficult to adhere to various lending requirements without existing financial information. In spite of these challenges, there are various financial resources that can help you get your business off the ground.

Evaluate Startup Costs and Expenses

Before deciding how to finance your business, determine how much money you anticipate needing for startup costs and regular expenses. Whether you run a brick-and-mortar or online business, consider the following when taking stock of expenses:

• Licenses and permits
• Trademarks, copyrights, or patents for your brand and products
• Business insurance
• Legal or accounting assistance
• Rent and utilities (for brick-and-mortar businesses)
• Equipment required for production
• Website platforms
• Marketing materials (both print and digital)
• Shipping supplies
• Subscriptions to content management systems and sales or marketing platforms
• Market research

As your business scales , you may need to expand your expense list to include:

• Employee salaries
• Rent and utilities for office space
• Travel expenses
• Conferences, conventions, and networking events

These lists aren’t exhaustive—every business’s needs are different—but they provide a starting point for you to brainstorm all possible expenses for your startup. When your list is complete, calculate your total estimated startup cost. This number is the amount of funding you’ll need to invest when starting your company.

Before raising capital, it’s also wise to familiarize yourself with how to read and create a balance sheet, income statement, and statement of cash flows. Financial literacy is a critical skill for entrepreneurs , and being aware of these financial statements will ensure you’re taking the necessary steps to become a responsible business owner.

Now, how do you obtain this necessary capital? Here are four sources of funding for your business’s launch.

Related: 6 Questions to Ask Before Starting a Business

How to Finance a Business

1. self-funding.

If your projected expenses add up to a manageable amount, you may be able to fund the business yourself. This can involve taking money from your personal savings account, dipping into your retirement funds, using credit cards and paying back the debt, or asking for donations from friends and family.

Self-funding comes with the risk of long-term debt or losing personal savings and, potentially, money from loved ones. However, it’s a financing option that allows you to retain full ownership over your business, which is often seen as a downside of raising venture capital from investors.

2. Crowdfunding

If you believe your business can garner a fan base, crowdfunding could be a good option. Crowdfunding platforms, such as Kickstarter, Indiegogo, and Patreon enable entrepreneurs to pitch their products and request financial backing.

If people are intrigued and support your product, they can donate to your company in exchange for a free item, discount code, or acknowledgment once your business is up and running. For this reason, crowdfunding is typically a good fit for business-to-consumer startup companies with physical products, although there are exceptions. Each platform has its own terms and conditions, which you should read before selecting one.

Like self-funding, crowdfunding allows you to maintain full ownership of your company, as long as you’re willing to thank your donors with free or discounted products. A few brands that got their start using crowdfunding are Oculus, PopSockets, and Allbirds.

3. Taking Out a Small Business Loan

Applying for a small business loan is another way to secure necessary startup funds. Before applying to banks and credit unions, prepare a business plan, value proposition, expense report, and financial projections for the next five years. Most banks or credit unions will ask to see some combination of these documents when considering your application.

Be sure to weigh the pros and cons of every bank loan offer you receive. Which gives you the lowest interest rate? What are the terms and conditions?

As Sahlman says in Entrepreneurship Essentials , “The terms of financing have a major impact on the success or failure of a venture.”

Related: What Does It Take to Be a Successful Entrepreneur?

4. Raising Venture Capital from Investors

Another avenue for funding your business is raising venture capital from investors.

“Successful companies are always forming hypotheses and testing all aspects of their business,” Sahlman explains in Entrepreneurship Essentials . “Ventures typically need outside investors to run experiments.”

Before reaching out to investors, prepare a business plan, value proposition, financial projections, and a tight, effective pitch deck.

The process of obtaining venture capital has been likened to dating —investors typically want to get to know you and your business before they commit.

One way to start this process is by asking a mutual connection to introduce you to investors. Your contact can serve as a character reference, if needed.

This process can take a while. If you’re looking for quick, easy money to start your business, raising venture capital may not be the right choice. Investors often want to see how you run your company before deciding to invest. Even after they supply funding, they may bide their time to see what you do with the money before investing more.

“Sensible investors stage their commitment to a company—they give enough money to conduct a value-changing test,” Sahlman says. “They preserve the right to abandon the venture by refusing to invest more money. They also design contracts that give them the right to invest more if the test yields encouraging results.”

There’s one factor that sets this option apart: Investors want to own a large, valuable share of your company in return for their investment. This allows them to sell their share in the future, when they predict your company will be worth a lot of money.

In Entrepreneurship Essentials , Sahlman shares Facebook’s journey with various investors and notes that it received $500,000 from angel investor Peter Thiel in its first round of funding in 2004. Just one year later, Facebook received a $12.7 million investment from prominent venture capitalist Jim Breyer.

Resist the urge to go big right away. Perhaps raising venture capital from investors is a second or third step for the funding of your business.

What's the Best Way to Finance Your Business?

Keep in mind that no two businesses are the same—only you know the ins and outs of your company’s needs. By weighing the risks and rewards of each funding option, along with your personal finances, predicted startup costs, and business expenses, you can select the best option for financing your business.

Are you looking to learn more about financing your venture? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world. If you aren't sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

This post was updated on June 3, 2022. It was originally published on August 4, 2020.

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