Starting a home-based business is an exciting venture, but securing funding can be a major obstacle, especially if you’re just starting out. Fortunately, there are multiple funding options tailored to small business owners without established business credit or resources. Here’s an enhanced, in-depth look at five great ways to fund your home-based business, including tips on who might benefit the most from each option.

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1. Microloans and Community Development Financial Institutions (CDFIs)

If you’re launching a business without a solid credit history or traditional forms of collateral, microloans and CDFIs can be a lifesaver. These organizations specialize in helping small, local businesses by offering manageable loans with favorable terms.

What are microloans and CDFIs?

  • Microloans are small-scale loans, often capped at $50,000, provided to new and small businesses.
  • CDFIs are nonprofit institutions dedicated to fostering local economic growth by supporting underserved entrepreneurs.

Why should you choose CDFIs?

CDFIs focus on groups traditionally underserved by larger financial institutions, such as women, minorities, and low-income individuals. Beyond funding, they also offer additional resources like networking opportunities and mentorship programs to set up entrepreneurs for success.

Who is this best for?

Microloans and CDFIs are ideal for small, community-focused businesses or first-time entrepreneurs seeking financial support with no prior business credit. If you’re looking for guidance and community connections as well as funding, CDFIs may be your best bet.

How to find CDFIs

Start by researching local CDFIs or organizations like Kiva Fund, which offers loans as small as $5,000 and business training programs to help entrepreneurs thrive. To locate a CDFI near you, visit www.cdfifund.gov.

What about online lending tools?

Fintech solutions like Square Loans and PayPal Working Capital offer fast, easy access to loans by using your sales history rather than credit scores. These tools are best for small, short-term expenses like restocking inventory, since loan amounts are limited and rates can be relatively high.

2. Small Business Grants

Grants offer the rare opportunity to secure funding for your business without taking on any debt. They’re highly competitive, but they’re worth the effort if you meet the qualifications.

Where can you find grants?

  • Federal, State, and Local Governments often have grant programs for small businesses in your area.
  • Private and Nonprofit Organizations such as the National Association for the Self-Employed (NASE) provide grants, with amounts ranging up to $4,000.

Specialized grants for underrepresented groups

Grants are often tailored for women, minorities, veterans, and other underrepresented entrepreneurs. For example, local women’s business networks frequently offer grant opportunities designed to uplift women entrepreneurs.

Who is this best for?

Grants are perfect for entrepreneurs who don’t want to incur debt and have the time and patience to thoroughly complete applications. They’re also great for individuals who qualify for specialized opportunities based on demographics or membership in specific organizations. Grants can be competitive and difficult to secure, so it’s best to pair this  funding stream with something more predictable, like loans or lending circles.

Pro Tip

Stay on top of deadlines and eligibility requirements to maximize these opportunities. Websites like Grants.gov and SBA.gov are excellent starting points.

3. Competition and Participation-Based Funding

Competitions and participation-based funding programs provide an interactive way to secure financial resources.

Types of competition-based funding

  • Pitch Competitions: Showcase your business idea and compete for funding and mentorship. Winning often comes with monetary prizes and expert guidance.
  • University and Alumni Competitions: Many colleges and universities offer innovation challenges for their active and former students that come with cash awards and prizes like free web development or office space.

Participation-based funding options

  • Community-Supported Programs: Nonprofit programs like SEED SPOT reward participants with microgrants for reaching milestones or completing tasks to strengthen their business, like attending programs, developing a pitch, and meeting with mentors.
  • Incubators and Accelerators: These programs offer funding, mentorship, and resources to early-stage businesses. Note that many accelerators require equity—meaning they’ll own a small share of your business—in return for support.

Who is this best for?

If you’re a business owner who thrives in competitive spaces or enjoys engaging with your community, this option is an excellent fit. Incubators and accelerators are particularly advantageous for tech startups and scalable businesses looking for resources beyond just capital.

How to explore these opportunities

Look up local incubators, accelerators, or competitions hosted by universities, nonprofit organizations, or business networks in your area.

4. Crowdfunding

Crowdfunding has become a game-changing way for entrepreneurs to secure funding and build excitement about their businesses at the same time.

What is crowdfunding?

Crowdfunding involves pitching your business idea on platforms like Kickstarter, Indiegogo, or no-interest small business funding sites like Kiva, allowing the public to contribute small amounts of money to support your venture.

Why is this effective?

Not only does crowdfunding help you raise capital, but it also doubles as market research. A well-supported campaign indicates your target audience is interested and willing to invest in your product or service.

Who is this best for?

Crowdfunding is ideal for product-based businesses or creators who need funds for pre-production. It allows you to essentially collect orders in advance, helping to offset manufacturing costs and eliminate the pressure of high minimums or upfront spending.

How to get started

Research the platform that aligns best with your target audience, and create a compelling campaign with visuals, videos, and clear incentives for backers.

Example success story: A local artisan raised $7,500 through Kickstarter to expand her handcrafted jewelry business and leveraged the support to establish recurring customer relationships.

5. Lending Circles and Community Funds

Local communities often present incredible opportunities for support through alternative funding models built on relationships and community investment

What are lending circles?

Lending circles are community groups where all members contribute a set amount each month and take turns receiving the pooled funds. It’s a relationship-driven way to access capital, built on trust and mutual support.

Community funds

Churches, neighborhood councils, and nonprofit organizations may offer financial assistance or low-interest loans to small businesses in their immediate area that create jobs and provide community services. These communities are a great place to meet other business owners, to trade services (e.g., you do their bookkeeping in exchange for their graphic design), share contacts, and build partnerships.

Tips for Seeking Funding with Confidence

  • Have a simple business plan and elevator pitch: Know how to clearly explain your business—what you offer and why it matters—in 30 seconds or less.
  • Be specific about your funding needs: Understand how much you need and what you plan to spend the funds on. Why is this important, and why now?
  • Prioritize long term relationships over quick asks: Create genuine connections with bankers, program representatives, and fellow business owners. People invest in people they know and trust.
  • Remember your “why”: Funding conversations can be intimidating, but grounding yourself in your mission helps you remember the bigger picture.

Getting the funding you need to grow your home-based business might seem daunting, but the resources and opportunities available today are better than ever. Whether you choose grants, loans, crowdfunding, or community lending, take the time to research your options and start with what fits your needs right now. Share your story, build relationships, and don’t underestimate the power of taking one small, confident step at a time. Your busines

Author: Lauren McDanell is vice president of strategy and growth at SEED SPOT.