- The benefit of using cash borrowed from friends and family members is that, unlike banks or another lending institutions, these contacts often do not require a high rate of return or demand to see the business turn a quick profit. However, the potential drawback lis that these types of personal loans can sometimes be handled unprofessionally.
_ The benefit of credit cards is that they are convenient means acquiring short-term cash. however, the risk associated with using credit cards for initial business financing is high rate of interest charged on unpaid balances.
- When more money is needed that credit cards, friends, or family can provide, another source of financing are small business loans from banks and saving and loan institutions. Lines of credit or start-up loans are also available and can be used to bridge short term capital needs. Federal and state grants may also be available, depending on the nature of the business.
- Angel investors are wealthy individuals who are looking to invest in interring businesses that have a prospect of growth and returns. Generally, angel investors do not want managerial role in their investment and often have a longer timeframe to receive a return on their investment.
- Venture capitalists invest in a business in return for some form of equity or ownership in the business. Venture capitalists usually require playing an active role in the management of the company, so this funding option may not be attractive to business owners who aren't open to the idea of relinquishing control.