9 Methods to Fund Your Side Hustle with Actual Examples

      Side Hustle Nation is committed to enhancing your personal profitability. To achieve this, we frequently collaborate with companies that share this goal. If you register or make a purchase through one of our partner links, we might receive compensation at no extra cost to you. Learn more. Congratulations! You have an excellent side hustle idea … now you just need the funds to launch it.

      While many small businesses can be started with relatively low initial costs, most still require some capital to begin. Having sufficient funds to start and grow your business is crucial. A recent study by CB Insights found that 38% of startups fail due to an inability to secure additional funding. Likewise, “money” is consistently one of the top challenges for side hustle entrepreneurs.

      In this guide, I’ll outline the 9 most common methods to finance your new business, allowing you to select the option that best suits your situation, complete with real-world examples and practical strategies you can implement today.

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      Three Main Types of Startup Funding

      There are three primary types of financing for new enterprises:

      - Bootstrapping

      - Debt financing

      - Equity financing

      The fundamental distinction between them lies in ownership. Bootstrapping involves investing your personal funds. Debt financing entails borrowing capital from an external source, like a bank, where you agree to repay the amount borrowed with interest over an agreed timeframe. Both of these options allow you to maintain control over your business. Conversely, equity financing requires selling shares or ownership stakes to investors, giving you access to funds without increasing debt, but you’ll need to share ownership and potential future profits.

      1. Bootstrapping

      Bootstrapping is how most small businesses and side hustles commence. Rather than seeking funds from investors or lenders, you depend on your money and effort to build your business. The U.S. Chamber of Commerce reports that 78% of small business owners use their own money to start their ventures. Bootstrapping is how I launched my first business and how most guests on Side Hustle Show began theirs.

      Bootstrappers adopt a lean methodology, focusing on essentials, minimizing unnecessary expenditures, and ensuring every dollar is utilized efficiently. It’s about being resourceful, maximizing your resources, and learning to achieve more with less.

      Real-Life Example: My Red Paperclip Story

      In Episode 299, I shared my initial experience of taking a small amount of savings and reinvesting it into my next venture. My first step involved my savings from part-time jobs in high school, which I used to buy a pickup truck for $3,500 to start a house painting business. I then invested $13,000 earned from painting into a down payment for an investment property. Subsequently, I used $10,000 from the sale of that property to fund my online shoe business. Everything that followed cost less than $500 to start.

      Alternative Strategy: Borrow Against Your 401k

      Loan limit: You can borrow up to 50% of your vested balance or up to $50,000, whichever is less.

      How it works: You are borrowing from yourself and will repay with interest (which is credited back to your account).

      Pros: No impact on your credit score in case of default.

      Cons: You may miss out on potential earnings those funds could have generated.

      Tips for Bootstrappers:

      - Start Lean: Concentrate on necessities and avoid superfluous expenses. Keep overhead low and prioritize essentials for your business.

      - DIY: Take on tasks you can manage yourself initially. This can help you learn vital skills to run your business.

      - Negotiate Everything: Aim for the best deals from suppliers, vendors, and contractors. Small savings can accumulate over time.

      2. Friends and Family

      Your friends and family often wish to see you succeed and may offer financial assistance to help launch your business. A study by Clutch indicates that 22% of founders secured funding from friends or family within the first three months of their business launch. However, this is not a decision to rush— you want to avoid straining personal relationships.

      Being open and transparent is critical. Share your vision for the business and outline potential risks and rewards to ensure everyone is on the same page.

      Real-Life Example: Cat Bloch’s Photo Booth Empire

      In Episode 471, Cat discussed needing approximately $20,000 CAD to start her photo booth business, with the equipment costing $13,000 after conversion, taxes, and shipping fees. Her bold philosophy was, “I have a relationship with money… scared money don’t make money. If I feel strongly about a necessary action, I don’t hesitate to spend that money.” She placed the deposit