Types of Small Business Financing Options

· Equity Financing – “Equity” is the net investment of owners or stockholders in a business. “Equity
financing” is financing in exchange for stock and/or options in the business, without any guaranteed return, but with the opportunity to share in the company's profits. Most small or growth-stage businesses use limited equity financing. This type of money often comes from nonprofessional investors such as friends, relatives, employees, customers or industry colleagues.

Another common source of equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Different investors expect different levels of involvement in managing a business in which they invest. Relinquishing some decision-making power and some potential for profits are the main considerations of equity financing.

· Debt Financing – There are many sources for debt financing: banks, savings and loans, commercial
finance companies, credit unions, micro/community lenders, state and local governments and the U.S. Small Business Administration (SBA) are the most common. Family members, friends, and former associates are all potential sources especially when capital requirements are smaller. Traditionally, banks have been the major source of small business funding. Their principal role has been as a short term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Very small businesses should consider credit unions and micro/community lenders as a viable option.