Where do most new businesses turn to for startup capital? The common assumption is friends and family. But a recent report from the Kauffman Foundation shows most actually rely on personal bank loans and credit cards.
Using data from the Kauffman Firm Survey of nearly 5,000 firms from their birth in 2004 through the first three years of life, “The Capital Structure Decisions of New Firms” reports:
“Indeed, our calculations indicate that external debt financing—primarily through owner-backed bank loans and business credit cards—is the primary source of financing at a firm’s inception. The average amount of bank financing is seven times greater than the average amount of insider-financed debt; three times as many firms rely on outside debt as do inside debt.