How Startup Owners Raise Capital

There are many avenues entrepreneurs come up with to raise funds. The creative business spirit has spawned countless strategies and clever ideas for generating the capital needed to get the doors opened on a new company. Survey data backs up the idea that there’s more than one way to skin a cat, as a very old saying goes. Indeed, when you need to locate funds for a lifelong dream, there are all sorts of ways to proceed.

How, exactly, do owners of startups conjure up the cold hard cash they need to pay for things like permits, rent, equipment, vehicles, salaries, website design, business plans and more? Here’s what a recent group of owners revealed, in 2019, about where they found the funds they needed to get started.

Business Loans and Lines of Credit

More than two-thirds of founders said they applied for and got either an SBA (Small Business Administration) loan or a business line of credit at their local bank. SBA loans are usually the better option is you meet the organization’s rather stringent qualification requirements. The other option in this category, business lines of credit, are one of the top two most common ways for eager entrepreneurs to raise the capital they need to get their companies off the ground.

Student Loans

It’s seldom noted in discussions about fresh faced entrepreneurs, but these intrepid leaders are often in their mid-20s and just out of college. A large percentage of them, like the founders of Domino’s Pizza and Facebook, earn a master’s degree while running their new companies. But tuition can be a major drain on the bank books of startup CEOs. What’s their workable solution? Take out student loans to fund education.

For startup owners or anyone else, getting an education loan means not having to dip into savings or other financial resources to handle the expenses of getting a higher education. One reason so many millions of people apply for college loans every year is to delay repayment until more abundant times. It makes good sense, too, because the average income of a college grad or master’s degree recipient is about 35 percent higher than a non-degree holder.

Personal Credit

Sometimes there’s no alternative to pulling out the plastic. About one third of all owners surveyed said they used personal credit cards for at least a portion of their startup funds. This strategy can be a smart one for people who have a large amount of available credit and the ability to pay the loan back as soon as possible.

Angel Investors and Relatives

About one fourth of all new businesses get from concept to grand opening due to the goodwill of family members and angel investors. Whether it’s a parent, sibling, cousin or rich uncle, family money pours into new corporations. This often happens because founders routinely tap friends and relatives first, offering them a piece of the action or a ground floor opportunity that could turn a $2,000 investment into a small fortune. Angel investors put their cash into budding entities for the same reasons in most cases.