Survey: Startup financing often dependent on personal funds

A new survey from online legal solutions firm LegalZoom and the Ewing Marion Kauffman Foundation revealed there are consistent trends among entrepreneurs launching their own businesses, including how they go about obtaining their initial business financing.

The data found 60 percent of business owners spend more than six months developing a business plan before finally launching their company, indicating entrepreneurs are cautious when opening their startups and work carefully to ensure their firms are successful. Sixty percent rely on personal funds to finance their operations - only 20 percent of those starting businesses rely on loans from family members, banks, outside investors or home equity loans. 

"With 80 percent of early-stage business owners using personal funds to finance their companies, founders are decidedly willing to take on risk," said John Suh, CEO of LegalZoom. "However, these business owners need additional financing if they are to succeed in helping drive our economy forward. Of the 60 percent of respondents who said they faced business difficulties, 45 percent cite lack of access to credit."

Which individuals are most likely to take these risks in opening their own enterprises? The data found those from age 30 to 49 started more companies than other age groups. Fifty-seven of those surveyed had industry experience before launching their firms and 44 percent had been business owners in the past. These experiences could impact how some entrepreneurs view the idea of loans or obtaining lending from an outside resource.

Small banks can help business owners obtain financing
With nearly half of these business owners claiming they can't access startup funding, they may be looking for lending in the wrong places. While some entrepreneurs may think their company has the best chance of obtaining loans from a larger bank, this belief could be off and cost a firm financing and opportunities in the long run. Smaller institutions sometimes have the ability to fund new or risky operations their larger counterparts won't provide with business loans. 

Small and mid-sized banks can often offer startups not only more flexible financing options, but more personalized banking solutions that more accurately suit their needs. Having access to these options can sometimes make a major difference for a newer enterprise that may need more individual attention or have specific requirements in regard to its cash management.  

Content presented by Bridge Bank, offering flexible, customized solutions for entrepreneurs.

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