How to Get Startup Funds in a Tight Market

Be careful when you approach family and friends. Many business owners say their first round of funding started with friends and family, and yours may too. Those who are closest to you may be the best chance to raise capital; but its cost can be much more than the interest rate. To avoid family tensions, be sure to get an agreement in writing because even the best of businesses can be derailed rather quickly if family-money issues come into play.

If you have a home with equity, you have yet another option -- to take out a mortgage. There are a few ways you can do this. One is to get a home equity line of credit. The interest rate is usually variable but you can draw from the line as you need it. Another option is to take out a second mortgage on your home to finance your business, and a lot of people do. Usually, you'll have the money up front, which means you will need to pay interest from day one. Money is fairly inexpensive these days. Just be prepared to pay this loan back, whether your business is successful or not.

Credit cards are another option. More than 15% of businesses, including both of ours, started at least in part with personal credit cards. This is OK if you expect to be able to pay it back quickly or can lock in a good deal (a low rate for 12 months or longer) from the bank. If you have an LLC, be sure you take the credit cards out in the name of the LLC and use its employee identification number (EIN) instead of your personal Social Security number. But for startups, banks will want a promise that you as an individual will pay off the balance, even if your business cannot.