What Is the Cheapest Way to Raise Capital

July 6, 2025 – Raising capital is a big challenge for startups and small businesses. Many entrepreneurs struggle to find the cheapest way to raise capital without losing control or paying high interest. In this article, we will explore the most affordable funding options available today.

Highway with multiple lanes and moving vehicles, metaphorically representing the cheapest way to raise capital through streamlined financial routes.

If you’re exploring business financing options, you might also find our guide on how to build wealth in 2025 helpful for long-term financial planning.

Whether you are a new business owner or an established company, choosing the right funding method can save you money. Let’s dive into the best low-cost ways to get the funds you need.

Table of Contents

Why Finding the Cheapest Way to Raise Capital Matters

Every business needs money to grow. But high-interest loans and expensive funding options can hurt your profits. Finding the cheapest way to raise capital helps you:

Preserve business ownership (learn more about business finance roles)
Avoid excessive debt burdens
Minimize interest payments (see our tax deductions guide to reduce costs)

Keep more ownership of your business
Avoid heavy debt burdens
Spend less on interest and fees
Grow sustainably without financial stress

Now, let’s look at the top affordable funding methods.

1. Bootstrapping: The Most Affordable Option

What Is Bootstrapping?

Bootstrapping means using your own money to fund your business. This could come from:

Personal savings
Credit cards (if used wisely)
Revenue from early sales

Why Is Bootstrapping the Cheapest Way to Raise Capital?

Bootstrapping means funding your business through personal savings or early revenue. This approach aligns with the principles we discussed in our article about value vs growth investing – both require patience and discipline.

No interest or fees
You keep full control of your business
No need to convince investors

However, bootstrapping has limits. If your business grows fast, you may need outside funding.

2. Crowdfunding: Raise Money from the Public

How Does Crowdfunding Work?

Crowdfunding lets you raise small amounts of money from many people. Popular platforms include:

Kickstarter (for creative projects)
Indiegogo (for tech and startups)
GoFundMe (for personal and business causes)

Is Crowdfunding a Cheap Way to Raise Capital?

Yes, because:

No loans or interest payments
You get funds without giving up equity (in reward-based crowdfunding)
Builds a loyal customer base

But, you must market your campaign well to succeed.

3. Grants: Free Money for Businesses

What Are Business Grants?

Government grants can be an excellent option, especially when combined with smart tax planning strategies. Understanding these variables can help maximize your funding.

Where to Find Grants?

Grants.gov (U.S. government grants)
Small Business Administration (SBA) (for U.S. businesses)
Local economic development programs

Why Grants Are the Cheapest Way to Raise Capital

No repayment required
No equity loss
Helps businesses in specific industries

The downside? Grants are competitive and take time to apply for.

4. Angel Investors: Funding from Wealthy Individuals

Who Are Angel Investors?

When considering angel investors, remember our analysis of the 3-generation rule of wealth – giving up equity now might affect your long-term wealth preservation.

How to Find Angel Investors?

AngelList (connects startups with investors)
Local startup networks
Pitch competitions

Is Angel Investing a Low-Cost Option?

It can be cheaper than loans because:

No monthly repayments
Investors bring expertise and connections

But, you give up a part of your business.

5. Venture Debt: A Lower-Cost Alternative to Equity

What Is Venture Debt?

Venture debt is a loan for startups that already have investors.

Why Choose Venture Debt?

Lower cost than giving away more equity
Flexible repayment terms

However, it still requires interest payments.

6. Revenue-Based Financing: Pay as You Earn

How Does Revenue-Based Financing Work?

This flexible option works particularly well for businesses affected by commodity price fluctuations. Stay informed with our oil price forecast to better plan your financing needs.

Why It’s a Cheap Way to Raise Capital

No fixed monthly payments
Payments adjust with your earnings

Platforms like Clearbanc (now Clearco) offer this model.

7. Business Credit Cards & Lines of Credit

When to Use Credit for Funding?

Short-term cash flow needs
Emergency expenses

Pros of Credit Cards/LoCs

Quick access to funds
Low interest if paid fast

Cons

High interest if unpaid
Personal credit may be affected

8. Peer-to-Peer (P2P) Lending: Borrow from Individuals

What Is P2P Lending?

Websites like LendingClub connect borrowers with individual lenders.

Why P2P Can Be Cheap

Lower interest than traditional banks
Fast approval

But, interest rates vary based on credit score.

9. Government & Small Business Loans

SBA Loans: Low-Interest Business Funding

The U.S. Small Business Administration (SBA) offers loans with low rates.

Why SBA Loans Are Affordable

Longer repayment terms
Lower interest than banks

But, approval takes time.

10. Supplier & Vendor Financing

How It Works

Suppliers let you buy now and pay later.

Benefits

No interest if paid on time
Helps manage cash flow

What Is the Cheapest Way to Raise Capital?

The cheapest way to raise capital depends on your business stage and needs. Here’s a quick summary:

Method	Cost	Best For
Bootstrapping	Free	Early-stage startups
Crowdfunding	Low fees	Product-based businesses
Grants	Free	Social enterprises
Angel Investors	Equity loss	High-growth startups
Venture Debt	Moderate interest	VC-backed companies

For most small businesses, bootstrapping, grants, and crowdfunding are the cheapest options. If you need larger funding, angel investing or SBA loans may work best.

Choose wisely to keep costs low and grow your business sustainably!

Additional Resources

By exploring these options, you can find the cheapest way to raise capital for your business without unnecessary risks.

FAQs About the Cheapest Way to Raise Capital

1. What is the absolute cheapest way to raise capital?

Bootstrapping is typically the cheapest method as it uses your own savings/revenue, avoiding interest and equity loss.

2. How can I raise capital without giving up equity?

Options include:

Bootstrapping
Crowdfunding (reward-based)
Business loans
Grants

3. Is crowdfunding really a cheap funding option?

Yes, platforms like Kickstarter charge only 5-10% fees versus 20-30% equity to investors. See our crowdfunding guide for details.

4. What types of businesses qualify for grants?

Common recipients include:

Tech startups
Social enterprises
Women/minority-owned businesses
Green energy companies

5. How long does it take to get an SBA loan?

Typically 60-90 days. Our business financing guide breaks down timelines for all options.

6. What credit score is needed for P2P lending?

Most platforms require 600+ score, with better rates for 680+.

7. Can I combine multiple funding methods?

Absolutely! Many businesses use:

Bootstrapping + crowdfunding
Grants + angel investment
Revenue financing + credit lines

8. How much equity do angel investors typically take?

Usually 10-25% depending on valuation and investment amount.

9. What’s the difference between venture debt and traditional loans?

Venture debt has:

Longer repayment terms
Often convertible to equity
Requires existing investors

10. Are business credit cards a good funding option?

Only for short-term needs (<6 months) due to high interest rates (15-25% APR).

11. How do I find local angel investors?

Check:

AngelList
Local startup meetups
Chamber of commerce

12. What percentage do revenue-based financing firms take?

Typically 2-10% of monthly revenue until 1.3-3x the investment is repaid.

13. Can I get funding with bad credit?