New Businesses Rely on Credit Over Friends and Family

It used to be that new business owners would turn to their network of friends and family for startup funds. A new report out from the Kauffman Foundation shows that more and more entrepreneurs are turning to personal bank loans and credit cards to get their businesses off the ground.

According to the study, nearly 75 percent of most firms’ startup capital is made up in equal parts of owner investment and bank loans and/or credit card debt.

"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."