Most small business owners suggest that you search “close to home” for funds during the early stages of your company. The vast majority of Inc. 500 companies used personal savings, loans from friends and relatives, or obtained consumer loans from banks or mortgage companies to fund the start-up of their companies. Only nineteen percent relied on commercial bank loans and only two percent received money from venture capital firms.
Once you establish a profitable track record, you will find that it’s easier to get financing, and then you will have a greater variety of funding sources to choose from.
Debt Funding
Many small businesses utilize debt funding for financing. However, debt funding may be difficult to get if the owner, or another key officer, has had previous credit problems, or if the business is a high-risk venture. Debt funding usually requires that the small business owner provide collateral that can be used as a guarantee for repayment of the loan. In addition, if the business fails, the borrower is still legally obligated to repay the loan.
Types of Debt Funding
Personal Loans
Funds from these sources are often the easiest for a new small business owner to obtain. These include: personal bank loans, loans from life insurance, credit cards, second mortgages (home equity credit), loans from friends and relatives.
Operations-Related Financing
This category of financing is dependent upon the day-to-day operations of your business. Some of these options are available to start-up businesses. These include: supplier credit, customer credit, leasing, accounts receivable financing, factoring, and asset-based financing.
Business Loans
This category of credit is the most traditional and widely used among businesses. Some of the most common forms of business loans used by small businesses include: term loans, demand notes, lines of credit, government-assisted loans, and convertible notes.
Financing Resources
