Money to start a business comes from two basic sources: equity or debt. Equity is an investment in the business by you or by a partner (or stockholder). Debt can come from private sources (family) or from formal ones (banks). The most common sources of financing include:
· Personal resources.
· Family and friends.
· Banks, including SBA loans.
· Creative sources & “bootstrapping.”
· Private investors or “angels.”
· Venture capital firms.
The type of financing available to you will depend on:
· The amount you need and how it will be used.
· Your personal financial condition.
· Your collateral.
· Your ability to manage a business.
· Your determination, presentation skills, and ability to negotiate.
Most businesses don’t start with bank loans or venture capital. Most actually start with a combination of personal resources, “bootstrapping,” and help from family and friends. Only a small number of start-ups begin with a bank loan, and even less start with venture capital. If you have little cash or personal assets and bad personal credit, bank loans are not an immediate option. Your first step may be to recruit an equity partner (“angel”) or a cosigner. Creative and determined entrepreneurs routinely start businesses without bank loans.
