Where Do Small Business Owners Get Funding for their Businesses?

The National Small Business Association did a survey and found that the most commonly used sources of financing for small businesses are:

• Credit cards - 44%
• Earnings of the business - 43%
• Bank loan - 29%
• Private loan (friends or family) - 22%
• Vendor credit - 18%
• Leasing - 7%
• Small Business Administration loan - 6%
• Private placement of debt - 4%
• Selling/pledging of accounts receivables - 3%
• Private placement of stock - 1%

Credit cards may be an expensive source of funds, but well, it is the most accessible and easiest to get. Especially for those with poor credit who don't stand a chance getting approved for a bank loan. It is not uncommon to find small business owners to be in credit card debt up to their eyeballs (love that term!). Credit cards may not be the wisest route to financing a business, but surely beats reading rejection letters from banks.

I have experienced first hand how it is to labor day and night crafting what I thought to be a great business plan, only to be rejected by the bank for not having any collateral. I was one of those who mistakenly believed that banks are willing to give you money if you have an outstanding business idea, even though you don't have any equity investment or collateral. That experience proved to me that you need money in order to make money. So just like many other entrepreneurs, I had to use my plastics to fund the business.

You can read the 2007 NSBA Survey of Small and Mid-Sized Businesses (data is on page 20)