It’s the question that everybody starting a small business asks. Do I need outside funding or can I bootstrap my business. If I do need funding, what kind do I need, and how to I get it?

Most businesses are actually financed by home equity or private savings. Attracting venture capital or angel investors is something that very few businesses will succeed at, though many will definitely try. And unlike investment money, borrowing will depend on collateral and guarantees over business ideas. So first and foremost, take a serious look at your financial situation and your business from a lender or investorsĀ  perspective. Be honest with yourself as you look at what sort of financing is feasible for your situation.

How do you know what the right funding is for your business type? In The Right funding for Your Business Type, Tim Berry discusses some funding options and their pros and cons. In a nutshell:

  • Venture capital firms want repeat entrepreneurs and businesses with huge growth rates
  • Angel investors are a lot like VCs but typically invest smaller amounts
  • Commercial banks generally will loan money for working capital or expansion, but not usually to brand-new businesses
  • SBA loans are available for various small business situations and populations, but still require collateral
  • Friends and family financing can be a good fit, or fraught with problems
  • Personal financing is great if you have the money and can put everything on the line.

For more details, read Tim’s full article. Or for another point of view, check out The Four Tiers of Small Business Financing.

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