How to Get Startup Funds in a Tight Market

By Dani Babb and John Rutledge

Babb, a small-business expert and the dean of Andrew Jackson University's College of Business in Hoover, Alabama, and Rutledge, the chairman of private equity investment firm Rutledge Capital, offer their advice on fundraising. This week, they respond to a question from Mary from Arkansas about small-business startup funds.

Mary: "How do I get money to start my business?"

Babb and Rutledge: Mary, there are many ways to get money to start your business.

Even though credit is tight, there are still lots of options. The right source of money for each entrepreneur depends on the business, the amount of money needed and the potential return.

Try the Small Business Administration for starters. We always recommend that a business check into the SBA, which has a lot of options for individuals wanting to start businesses. They offer loans of up to $500,000 with 10% collateral under the new rules.

However, getting money these days isn't as easy with tightening lending standards. If you do go the SBA route, be sure you have the business documents required by the SBA before you hit the bank.

If you're starting a business as a sole proprietorship, you'll need good credit. If your personal credit score isn't so hot, Mary, consider creating a new LLC that will let you "start over" in many respects with regard to your financing options.

Another option is to BYOB, or be your own bank. Do you have an attic, closet or garage full of stuff you aren't using? Many businesses, particularly online businesses, can be started with less than $5,000. Sometimes you can sell enough stuff on eBay(EBAY Quote) to start your new venture and avoid owing money to anybody. Do this before you approach other sources of capital -- it's always your lowest cost source of money. We helped a business owner two weeks ago that found more than $7,000 worth of "knick knacks" in her closest was able to get her online business started. In about three months she will have an e-commerce store.