Small Business Financing

Common Sources of Financing for Small Business
by: Jeff Schein

The choice of financing is an important determinant of whether a product reaches the market, or whether an existing business can survive. The choice of financing is an important part of being an entrepreneur and business owner, and the ability to raise cash when you have no or limited history takes skill and creativity. There are a number of sources of financing. The suitability of the alternatives depends on what stage you are at, and will change as the company matures from stage to stage. The following outlines the most typical forms available.

Yourself, Family and Friends

The most obvious and common start is for people to self finance. That means they either draw down on their savings or they use personal debt such as credit cards, credit lines or equity mortgages to finance their business. Family and friends are often used as a source of financing. Although they are not always in a position to properly evaluate the business venture, family and friends have long-time relationships and experience with the entrepreneur and are knowledgeable about his/her reliability and ability.

Strategic Partner

Strategic partners can not only provide a source of financing, but often they can provide an area of expertise that the entrepreneur does not bring to the table, such as operational or marketing skills. Naturally, the pitfall of a partner is that you do not maintain full control over the company and that sometimes there is a falling out between the partners. So it is important that you do your homework and choose your partner carefully.

Part 2 - Angel Financing

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