In the current troubled climate for commercial loans and working capital loans, a spirit of “We’re all in this together” would be appropriate for commercial lenders and business owners. Instead it appears that this approach is sorely missing, as indicated by several examples in the article.

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Many commercial financing observers have expressed concerns that the largest business lenders (primarily those receiving federal funds recently to assist with their troubled business finance funding operations) are not acting as if “We’re all in this together”. In the Working Capital Journal and other financial publications, there have been numerous reports that only a small number of the larger banks appear to be lending normally and acting as responsible corporate citizens.

Two major problems are becoming more obvious for business borrowers as a result:

(1) Even though the funds have supposedly been provided to do just, banks receiving bailout funds have failed to resume a normal lending pattern for commercial finance funding. Of equal concern, these banks have largely refused to report with any clarity how they have spent billions of dollars in bailout funds.

(2) Many banks are decreasing their commercial loans and commercial real estate loans by recalling outstanding loans or cancelling business lines of credit.

There has already been much public backlash in reaction to inappropriate banking bonuses and spending. So far that has primarily taken the form of criticism and questions about how banks are allocating the financial resources largely subsidized by the taxpayers providing bailout funding. As it becomes more obvious that the action of many banks is impeding the recovery from economic chaos, it is likely that most business owners will choose to obtain their business finance funding from a lending source that has helped rather than hindered financial recovery efforts.

As always, business owners cannot typically afford to wait for government and external action to resolve problems like those described above. Given the facts that many banks have exited or reduced commercial lending activities, business owners should attempt to find alternative sources for working capital loans and commercial loans.

With appropriate help from a commercial financing expert, commercial borrowers will be able to identify which commercial lenders have been acting like responsible corporate citizens and business neighbors. It is unfortunately common to find that most bigger banks have eliminated new working capital financing and commercial mortgage loans. Although they are proving to somewhat difficult to identify and locate, there are commercial lenders actively making new commercial loans.

Although the discussion above focused primarily on the questionable lending activities of many larger banks, an equally problematic commercial financing situation is that very few local (and smaller) banks have resumed normal business lending. A previously familiar and reliable source for working capital loans might not continue to be a viable business funding choice. For the most part, local and regional banks simply do not have sufficient capital for new commercial loans.

Many commercial borrowers will discover new financing choices such as business cash advance programs as well as alternative funding choices. Under most circumstances, business cash advances are provided by business lenders other than commercial banks. As a result, these working capital funding sources are often proving to be more effective than traditional banks of any size in providing reliable commercial financing. In the end, business owners should hopefully find that their business financing situation will improve by choosing lenders which display the appropriate attitude of “We’re all in this together”.

As a small business start-up coach, I get asked a lot of questions. The most frequent one: Where do I get start-up cash? If you are wondering the same thing, this article is for you. In it, you will learn about the differences between angel funding and venture capitalists, the value of taking out a loan, and considerations of taking on a silent or working partner.

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I’m always glad when my clients ask me this question. If they are asking this question, it is a sure sign that they are serious about taking financial responsibility for start it.

Not All Money Is the Same

There are two types of start-up financing: debt and equity. Consider what type is right for you.

Debt Financing is the use of borrowed money to finance a business. Any money you borrow is considered debt financing.

Sources of debt financing loans are many and varied: banks, savings and loans, credit unions, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. Loans from family and friends are also considered debt financing, even when there is no interest attached.

Debt financing loans are relatively small and short in term and are awarded based on your guarantee of repayment from your personal assets and equity. Debt financing is often the financial strategy of choice for the start-up stage of businesses.

Equity financing is any form of financing that is based on the equity of your business. In this type of financing, the financial institution provides money in return for a share of your business’s profits. This essentially means that you will be selling a portion of your company in order to receive funds.

Venture capitalist firms, business angels, and other professional equity funding firms are the standard sources for equity financing. Handled correctly, loans from friends and family could be considered a source of non-professional equity funding.

Equity financing is usually a larger, longer-term investment than debt financing and often involves stock options. Because of this, equity financing is more often considered in the growth stage of businesses.

7 Main Sources of Funding for Small Business Start-ups

1. You

Investors are more willing to invest in your start-up when they see that you have put your own money on the line. So the first place to look for money when starting up a business is your own pocket.

Personal Assets

According to the SBA, 57% of entrepreneurs dip into personal or family savings to pay for their company’s launch. If you decide to use your own money, don’t use it all. This will protect you from eating Ramen noodles for the rest of your life, give you great experience in borrowing money, and build your business credit.

A Job

There’s no reason why you can’t get an outside job to fund your start-up. In fact, most people do. This will ensure that there will never be a time when you are without money coming in and will help take most of the stress and risk out of starting up.

Credit Cards

If you are going to use plastic, shop around for the lowest interest rate available.

2. Friends and Family

Money from friends and family is the most common source of non-professional funding for small business start-ups. Here, the biggest advantage is the same as the biggest disadvantage: You know these people. Unspoken needs and attachments to outcome may cause stress that would warrant steering away from this type of funding.

3. Angel Investors

An angel investor is someone who invests in a business venture, providing capital for start-up or expansion. Angels are affluent individuals, often entrepreneurs themselves, who make high-risk investments with new companies for the hope of high rates of return on their money. They are often the first investors in a company, adding value through their contacts and expertise. Unlike venture capitalists, angels typically do not pool money in a professionally-managed fund. Rather, angel investors often organize themselves in angel networks or angel groups to share research and pool investment capital.

4. Business Partners

There are two kinds of partners to consider for your business: silent and working. A silent partner is someone who contributes capital for a portion of the business, yet is generally not involved in the operation of the business. A working partner is someone who contributes not only capital for a portion of the business but also skills and labor in day-to-day operations.

5. Commercial Loans

If you are launching a new business, chances are good that there will be a commercial bank loan somewhere in your future. However, most commercial loans go to small businesses that are already showing a profitable track record. Banks finance 12% of all small business start-ups, according to a recent SBA study. Banks consider financing individuals with a solid credit history, related entrepreneurial experience, and collateral (real estate and equipment). Banks require a formal business plan. Before giving you a loan, they also take into consideration whether you are investing your own money in your start-up, or not.

6. Seed Funding Firms

Seed funding firms, also called incubators, are designed to encourage entrepreneurship and nurture business ideas or new technologies to help them become attractive to venture capitalists. An incubator typically provides physical space and some or all of these services: meeting areas, office space, equipment, secretarial services, accounting services, research libraries, legal services, and technical services. Incubators involve a mix of advice, service and support to help new businesses develop and grow.

7. Venture Capital Funds

Venture capital is a type of private equity funding typically provided to new growth businesses by professional, institutionally backed outside investors. Venture capitalist firms are actual companies. However, they invest other people’s money and much larger amounts of it (several million dollars) than seed funding firms. This type of equity investment usually is best suited for rapidly growing companies that require a lot of capital or start-up companies with a strong business plan.