What Are the Sources of Small Business Startup Funding?
Funding a Startup Business
Getting a loan for an existing small business is very different from funding a startup business. Whereas an existing business might display a steady track record, generate cash flow and have collateral (against which the business can borrow funds), a small business startup has a significantly different risk profile.
An existing small business can point lenders to its past performance to mitigate concerns about the future. With small business startups, there is no such thing as past performance. Accordingly, it is incumbent upon the small business owner to demonstrate the financial and professional wherewithal to successfully launch and operate the business before being considered for outside financing.
So how do most small businesses get startup funding? Only a very small percentage of startup businesses actually raise venture capital. According to the Kauffman Foundation, bank loans and personal savings are the two largest categories of funding.
What Are the Best 8 Sources for Small Business Funding?
- Banks and Other Loans (34.%)
- Personal Savings (30.0%)
- Friends and Family (6.3%)
- Credit Cards (6.2%)
- Angel Investors (5.8%)
- Venture Capital (4.4%)
- Government Related (2.0%)
- Other (10%)
Within each category there can be many flavors. Consider Personal Savings, for example.
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