Small Business Capital: Financing Options

One of the leading reasons that 50% of small businesses fail within the first five years is due to inadequate capitalization. This can be due to a misjudgment of the initial start up costs, or sudden growing pains that quickly deplete cash.  There are a good number of financing options available to a business owner if existing funds have been tapped out. Here a few ideas.

Family and Friends

Friends and family are a good source of financing, if the payments can be kept up. Contract templates are recommended and can be found at stationary or office supply stores. You can also consult an attorney for assistance. Be sure to pay your payments on time so that your relationship is not adversely affected.

Personal Savings and Retirement Accounts

You can dip into your personal resources in order to stay out of debt. One of the most important considerations to think about when you do this is to calculate how long it will take you to recoup the funds. This is almost always a bad choice for retirement accounts, so be very careful.


A microlender can be a person or a group of people organized into a firm. Generally, they are non-profit and are willing to offer small loans of $500 to $35,000. Many of these microlenders can be found at the Small Business Administration or on the Internet.

Small Business Administration (SBA)

The SBA offers financing programs to small businesses. It doesn't actually make direct loans, but partners with other organizations who must follow SBA guidelines. The three basic programs that it offers are the Guaranteed Loan Programs, Bonding Program (Surety Bonds), and Venture Capital Program (Equity Financing).

Angel Investors

Angel investors are lenders that are usually individuals who are working and wealthy, or the retired rich. They provide financial backing to start-ups or entrepreneurs. They usually invest in industries where they have previous knowledge or experience. A good lead source is networking with legal or financial advisors, or other business owners. The Angel Capital Association (ACA) keeps tabs on many Angel groups throughout the United States.


Government grants can be a source of partial funding. Usually, these loans are available to certain businesses specialized in areas of technology that the government is interested in. Also, companies involved in research or of social value are possible candidates.  Another place to look would be regional governments and foundations.

Local Banks

Local community banks, or other similar lending institutions can be a good source for a loan. They are more familiar with the local economy and culture. Also, you can try your local credit union.


There are sites on the Internet that act as intermediaries to connect small business owners to alternative lending sources that belong to their own network. Loans can range from $10,000 to $2 million. Many banks and other lending institutions also have websites that are easily navigated to their loan application pages. In addition, there are many online sites that will compare loan parameters for you.