You Want to Start a Business — How Should You Finance It?

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Originally published in Entrepreneur Magazine

By Mark Abell

Getting a small business off the ground is a huge achievement, but establishing financing on a solid footing is critical to whether an enterprise ultimately succeeds or fails.

As a banking officer dealing with financing requests every day, the most common question I hear from founders of startups is, “Should I finance with equity or debt?” I’m here to tell you, there are no pat answers. And even worse, it can be a life and death decision: More than 500,000 businesses are established in America annually but half of them fail within five years. The No. 1 reason for failure is a bad strategy backed by surplus optimism, but the next biggest cause of failure is a lack of funding.

Small businesses attracted nearly $1.2 trillion in financing in 2015, according to the Small Business Administration — almost $600 billion in bank loans and $593 billion from other sources, such as finance companies, angel capital and venture capital. However, when it comes to funding startups, only 8 percent of capital comes from bank loans.

Bootstrapping startups requires financial creativity.

Read the full article at https://www.entrepreneur.com/article/290796

Mark Abel is Senior Vice President and SBA Division Director at NBH Bank.