Understanding Startup Capital: A Comprehensive Guide for Small Business Owners

Money, as the old saying goes, makes the world go round. And that’s certainly true for businesses. Without money, or capital, you may as well call it quits.

That’s especially true for small businesses and startups. Younger businesses, those without the deep reserves of larger corporations, need capital to meet a whole array of demands, like covering overheads, developing products and brands, paying salaries, finding premises, and marketing. The money that’s needed is called startup capital for business.

The good news is that Filipino startups aren’t alone. There are several well-walked paths when it comes to securing small business startup capital, including government loans, private loans, grants, and venture capital investment. If you know how to go about it, securing the funding your startup needs to grow doesn’t have to be a chore.

Let’s explore how to start a business with small capital and the details of startup capital for small businesses in the Philippines.

What is startup capital?

Imagine you wake up with a fantastic business idea. To turn that business idea into a reality, you’re going to need to make a long to-do list. That list will include:

• Developing the product/service
• Production
• Hiring staff
• Conducting market research
• Buying equipment
• Renting premises
• Getting licenses/permits
• Developing the brand
• Marketing

All of that costs money. That money, which is what businesses use to get started, is what we mean by startup capital. Without it, even the most promising business ideas can struggle to get off the ground.

Of course, startup capital is not technically the same as operating capital for an already-existing business. Or, for that matter, seed capital, which is super early-stage funding. Startup capital strictly refers to money used to get operations up and running for the first time.

When it comes to securing startup, or starting, capital for a small business, Filipino entrepreneurs have a few main options. Those include:

• Loans (both government and private loans)
• Grants
• Venture capital investment
• Angel investment
• Personal savings

However, before we get into these funding methods, let’s tackle how to start a business with small capital. After all, most of us don’t have hundreds of thousands of pesos lying around.

How to start a business with small capital

Starting a business is no walk in the park. It can take a huge amount of time and effort. Some would include money there, too. However, starting a business doesn’t always require astronomical sums of money.

All it takes is careful planning and the right mindset. These alone can launch a successful venture even with limited funds. Here, are some practical steps and cost-saving strategies to help you get started:

• Start small, scale gradually: Don’t try to do everything all at once. You can’t become a top business overnight. Instead, start out with a lean version of your business, a minimum viable product. Focus on your core offering and test your idea in the market before investing heavily in other aspects.
• Choose a low-investment business model: These days, many businesses simply require less to start. If yours is a service-based, or virtual, service, like freelance writing, virtual assistance, social media management, tutoring, or consulting, you may not need much beyond a laptop and internet connection to take off.
• Use free or low-cost tools: There are many amazing high-end business tools out there. But you needn’t splash out on those right away. To start with, use free, entry-level alternatives. Think free website builders like Wix or WordPress, or affordable finance management with QuickBooks. Canva and Mailchimp are also super popular in their respective fields.
• Work from home: Avoid renting office space in the early stages. A home office eliminates rent and utility expenses, allowing you to reinvest that money into growing your business.
• Tap into your network: Okay, so you’re not friends with Jeff Bezos. But almost all of us have at least some network to draw on. Even if it’s just friends, family, or local entrepreneur communities. Look for anyone who’s interested in collaborating in any way and keep an open mind.
• Start as a side hustle: If possible, start your business as a side project, while still working a main job. This’ll reduce financial pressure and give you time to build your brand and customer base before going full-time.

Budgeting and prioritizing your startup capital

Let’s assume you have some startup capital for your business, even if it’s only a small amount. How you spend it is just as important as how you get it in the first place. Your ability to budget and prioritize can really make or break your whole venture.

To start with, we recommend identifying your must-have expenses. These are costs critical to launching and running your business. Usually, must-haves will include things like:

• Legal registrations
• Licenses
• Equipment
• Initial inventory
• Key software/tools

Remember, you should avoid the temptation to spend on non-essentials, like high-end office space or premium branding packages, at this early stage.

Next, break up your startup capital into categories:

• One-time setup costs
• Recurring monthly expenses
• Reserve for unexpected needs.

This breakdown gives you a clear picture of where your money is going and helps you plan for sustainability.

If you’re involved in an exciting startup, you may feel a buzz. Sometimes, there’s a temptation to go all in, but prioritization is key. Rank your expenses based on what will directly impact your ability to start and attract customers. Let’s say you’re launching an online shop, investing in a good website is more important than ordering branded packaging right away.

Of course, as your business grows, you can adjust your finances. In fact, regularly reviewing and adjusting your budget is a great move. It helps you stay agile and responsive to real-time needs. Tools like QuickBooks can help you track your spending and stick to your budget. Try it out for 3o days for free.

Types of startup capital available to small businesses

Startup capital for small businesses in the Philippines comes in many shapes and sizes. At this stage, you may feel that any capital is good capital. But choosing the right funding type, not just any, for your business goals and financial situation is essential.

Here are some of the most common sources of startup capital:

1. Personal savings: Depending on how much you have, as well as how much you need, you may be able to make some serious headway with your own personal savings.

• Pros: Full control over your business decisions, plus no debt or equity sharing.
• Cons: High personal financial risk. Limited capital may restrict growth.

2. Family and friends: You may be able to round up some informal loans or investments from willing close friends or family. A common option in the Philippines.

• Pros: Flexible terms, often interest-free or low-interest.
• Cons: Can strain personal relationships if the business struggles.

3. Bank loans: A traditional route would be securing an SME loan from a bank, like BPI or BDO. Many major banks offer business loans, although terms will vary.

• Pros: Access to larger capital amounts and structured repayment plans.
• Cons: Strict eligibility criteria and requires collateral and a good credit history.

4. Government grants/programs: The Philippine government is making an effort to fund high-potential businesses to grow the economy. Agencies like DTI and TESDA offer funding assistance and livelihood grants.

• Pros: Non-repayable funds or low-interest support, plus mentorship and training are often included.
• Cons: Competitive application process, meaning funds may take time to release.

5. Microfinance institutions: Organizations, like ASA Philippines, often provide small loans to micro-entrepreneurs.

• Pros: Accessible to those without traditional collateral, more community-focused.
• Cons: Limited loan amounts, meaning higher interest rates than banks.

6. Venture capital/angel investors: Filipino VC firms and angel investors are always on the lookout for high growth-potential startups, especially in tech.

• Pros: Access to large capital, and often includes mentorship and networking.
• Cons: Requires giving up equity, and investors may influence business decisions.

This list might not tell you which type of startup capital for a small business to choose. But it should give you some idea of how methods vary and the risk tolerance associated with each.

Common challenges when securing startup capital

You may have a lot of options when it comes to securing startup capital, but that doesn’t mean it’s easy. Filipino entrepreneurs may come up against a whole host of potential challenges on their road to financing.

Here are a few common challenges to watch out for, as well as some solutions:

• Lack of collateral and credit history: Many investors, especially traditional banks, require collateral and a strong credit history, sometimes both, to give your business loan the green light. If you’re a first-timer, meeting those requirements could be a little tricky. Unfortunately, there’s no way around checks. But you can consider alternative financing options like microfinance institutions or government programmes. Many of these offer collateral-free loans for qualified SMEs (check out the DTI and SB Corp).
• Limited access to formal financial institutions: If you live in a rural area you might not have access to big banks or official lenders. That can be a big hurdle. But these days, digital lending platforms and fintech solutions are becoming more accessible. They can provide fast, paperless loan applications tailored perfectly for small businesses like yours.
• Insufficient business documentation: Most funding applications require a lot of paperwork. That includes financial records, registrations, permits, or business plans. Startups may lack these. We’d recommend working with local Negosyo Centers, which offer free assistance in this area. Keeping financial records with online tools, like QuickBooks, is also a great idea.
• Difficulty finding investors: In the Philippines, venture capital and angel investors are usually most keen on tech startups or high-growth sectors. So it can be hard for traditional businesses to attract interest. But you can always attend local business and networking events or pitch competitions. Anything that puts the word out there and connects you with potential investors is a plus.
• Fear of rejection or debt: This one’s a little more personal, but it’s still a common issue. Many entrepreneurs simply fear being rejected or incurring debt from day one. To overcome this, we recommend starting small and using low-risk government programs. This is invaluable for building confidence and preparing for larger funding applications in the future.

How to overcome challenges in securing capital

Here are some more general tips that will help you overcome challenges in securing all-important startup capital in the Philippines:

• Build a strong business plan: Never neglect your business plan. A watertight, well-developed business plan is absolutely essential in showing lenders and investors you mean business. It should clearly outline your business model, target market, competitive advantage, and financial projections.
• Strengthen your financial records: Clean, organized financial records boost credibility. Even if you’re just starting out, take the time to put yours in order. Accounting tools like QuickBooks make it easier than ever to track income, expenses, and cash flow.
• Network, network, network: Do everything you can to connect with the right people, whether they’re potential investors or collaborators. Join local business groups and attend startup events whenever possible. In the Philippines, platforms like QBO Innovation Hub and Go Negosyo offer networking opportunities that can lead to funding or mentorship.
• Explore alternative funding sources: Traditional finance is not the be-all and end-all. Entrepreneurs have other options, too, like crowdfunding or digital lending platforms.
• Start small and build credit: Begin with a manageable loan or use personal savings to build your business gradually. Proving that you can responsibly manage a small amount of capital helps build your creditworthiness, making it easier to secure larger funding in the future.

Small business startup capital: Key considerations

We’ve explored several avenues you can take to secure funding, but you shouldn’t necessarily start applying to financing opportunities right this minute. Instead, there are a few things you need to consider first, both to increase your chances of securing capital and to make sure you’re getting the right kind of capital in the first place:

• Understand financial risks: Know that every funding option comes with its own risks. For loans, that would be regular repayments with interest which can strain cash flow. For bringing in investors, it would be giving up equity and compromising on decision-making. Be sure to weigh up your risks.
• Match capital to business type: The amount and type of capital you need will vary based on your business model. A home-based online store may need far less capital than a physical café or manufacturing business. Determine your exact needs so you can launch without overcommitting financially.
• Plan for flexibility: Anyone who’s ever started a business will tell you costs and timelines rarely ever go as planned. That’s just the nature of the game. Financial needs, in particular, can shift quickly. That’s why it’s important to build your capital plan with flexibility in the background. Usually, that means building an emergency fund.
• Consider short-term vs long-term funding needs: Some financing is better for short-term needs. Think SME loans or personal savings. Others suit longer-term scaling, like venture capital. Think about where you are and what you want the capital to achieve.
• Know the terms and conditions: Always, go through the terms and conditions with a fine-tooth comb before signing a contract. Make sure you have the full picture on repayment terms, interest rates, equity agreements, or any limitations imposed by investors or institutions.

The importance of financial planning and risk management

In these early stages of your business, every peso counts. So, having a clear financial roadmap to follow is crucial. It will help you ensure that whatever startup capital you do secure is used efficiently and strategically.

First up, financial planning. This is the process of forecasting your expenses, estimating revenue, and setting a realistic budget.

Hopefully, you can already see why this is so important. It helps you prioritize spending where it matters most, and makes you more flexible. This way you can track your performance and make adjustments where and when they’re needed.

Without solid financial planning, one hiccup can quickly drain your resources.

Now for risk management. Startups in the Philippines face a variety of risks, from fluctuating market demand and supply chain issues to regulatory hurdles and unexpected expenses.

You need to have an idea of what risks you might face before you set out. Only then can you hope to mitigate them. You might think about building an emergency fund or diversifying suppliers and sales channels. You might also want to consider securing strong insurance.

The purpose of financial planning and risk management before you get started isn’t just to avoid hurdles. It’s also about setting up the right conditions for growth. Proactivity is a habit every successful business leader has in common.

Funding options for small business owners

If you’re not a startup, you may instead be looking for funding ideas for your already-existing small business.

Let’s take a look at some of the main funding options for small businesses in the Philippines:

• Crowdfunding: Angel investment involves getting a large lump sum from one individual. Crowdfunding, on the other hand, involves getting many small investments from multiple investors. Small businesses can crowdfund pretty easily online. Platforms like The Spark Project and GoGetFunding are perfect for Filipino entrepreneurs involved in creative projects with strong community appeal.
• Pros: No debt or equity loss and great for market validation.
• Cons: Requires marketing effort and a compelling pitch to succeed.
• Angel investors: Angel investors are individuals who invest their personal funds in promising startups in exchange for equity. Attracting an angel investor is great for scalable tech companies. If you're Philippines-based, check out the Manila Angel Investors Network (MAIN).
• Pros: Access to capital, mentorship, and networks.
• Cons: Equity dilution and potential influence on decision-making.
• Government programmes: The DTI and TESDA offer various financial and technical support programmes worth looking into.
• Pros: Low-interest or no-interest loans, which sometimes includes training and mentoring.
• Cons: Application processes can be lengthy and competitive.
• Bank loans: Small businesses might prefer the tried-and-tested bank loan route. Indeed, in the Philippines, many major banks offer great SME loans ideal for established businesses or startups with strong documentation and collateral.
• Pros: Access to larger amounts with structured repayments.
• Cons: Requires good credit standing and paperwork, and you may need collateral.

Government grants and loans for small business

The good news for Filipino startups and small businesses is that the government is on your side. They’re trying to promote inclusive growth and entrepreneurship across the country. With that aim, the government has set up several high-level grants and loans to help businesses like yours hit the ground running.

Here are some of the forefront government financing options you should be looking into in 2025:

• Pondo sa Pagbabago at Pag-asenso (P3): This is a programme operated by the Small Business Corporation (SB Corp), under the Department of Trade and Industry (DTI). Its aim is to provide loans to micro and small businesses. Here are a few facts at a glance.
• Loan amounts typically range from ₱5,000 to ₱200,000
• Affordable repayments
• No collateral requirements
• Low interest rates
• Small Enterprise Technology Upgrading Programme (SETUP): Operated by the Department of Science and Technology (DOST). If you already have a small business but find you’re in need of equipment upgrades to increase productivity, this loan is for you.
• TESDA's Livelihood Assistance Programmes: They provide both funding and skills training for individuals just getting started in new trades or services.

A few things to note about applying. Firstly, applying is pretty straightforward. You’ll need to gather some relevant documentation before getting started, which varies depending on the loan. From there, go to the respective government agencies’ website. For P3 loans, applications can be submitted through accredited partner microfinance institutions or directly to SB Corp’s online platform. DTI’s Negosyo Centers, located across the country, also assist with applications. Plus, they offer free business advisory services.

You’ll need plenty of documentation to stand a chance of getting approved. But you don’t give yourself a headache, especially when gathering financial documents.

QuickBooks can help, by generating and gathering all the financial documents you need in the blink of an eye. Don’t believe us? Try it for free today for 30 days and see the difference QuickBooks can make.