What Are Some Sources of Funding to Start a Business?

• Personal savings play a key role in financing a new business. Aaron Graubart/Digital Vision/Getty Images

  Entrepreneurs starting a small business usually use their personal assets to get the business up and running. But there are other sources of funding out there when personal assets are not enough. The list includes commercial loans, equity financing, venture capital and even private loans. Before applying for financing, however, it is important to make sure all of the necessary preparations are complete.

Personal Assets

• Personal savings top the Small Business Administration's list of startup financing sources. The SBA notes that while personal credit cards can be used to finance a business, there are better options. Other entrepreneurs borrow money from friends and relatives to get started, or take out home equity loans if they own a home.

Other Funding Sources

• Other sources include bank loans, venture capitalists and equity funding, which is selling an interest in your business. The SBA has several loan programs available, though it does not loan money itself; rather, it guarantees a commercial lender that your loan will be repaid if you go out of business or otherwise default on the loan.

Where to Find Money

• Businessfinance.com is a website that matches entrepreneurs with funding sources. The website is recommended both by SCORE and the J.J. Hill Reference Library, both of which are free resources for people starting a business. Businessfinance.com asks users to answer a series of questions about how much money they need and what it will be used for. The website then searches its database of 4,000 users and comes up with potential funding sources. Users must register with the site to get the list, but registration is free.

Small Business Investors

• Also recommended by the Hill library is the Small Business Investment Companies (SBIC) directory, operated by the Small Business Administration. This is a state-by-state list of companies willing to invest in small businesses. These companies provide private equity financing as well as make loans, the SBA notes.

First Step Toward Financing

• Both the U.S. Chamber of Commerce and the SBA say entrepreneurs must have a complete business plan in place before going after financing. Furthermore, entrepreneurs need to know how much money they need, why it is necessary and how they'll pay it back. "You must be able to convince your lender that you are a good credit risk," the SBA says on its website. The SBA website has detailed information on how to write a loan proposal, which includes personal financial information, descriptions of how the business will operate, and its products and who will buy them.