The Baltimore Sun

Finding the right type of financing is often one of the most difficult parts of starting and building a small business. You may have a terrific plan and be a talented workaholic, but finding funding is another matter.

Business owners often start with too little money. It's one of the most common reasons why new businesses do not make it.

Sources and types of small-business financing fall into a few broad categories. It will be either debt or equity financing from an institution or informal sources. Debt financing is a loan you pay back. Common sources include family and friends, personal credit cards, home equity lines of credit, commercial bank loans and bank loans backed by the U.S. Small Business Administration.

Some small businesses also receive a type of funding from suppliers and vendors in the form of special payment terms, discounts or even direct loans. Suppliers want you to succeed, so they are sometimes willing to help.

With equity financing, you offer investors shares of your business in return for cash. Unlike loans, you are not required to pay back the money. These vendors now own a part of your business and will want a return on their investment. Venture capitalists work this way, and stock offerings are a type of equity financing. Other funding or cost-sharing options include partnerships, joint ventures, alliances and business incubators. Incubators rarely offer cash, but provide crucial support in the form of free or reduced rent and business services.

The SBA 7(a) Loan Guarantee Program is the main small-business financing tool. It helps secure loans up to $1.5 million for small businesses that are unable to find financing on reasonable terms. For details on all SBA programs, visit

Stephen L. Rosenstein is co- chairman of Greater Baltimore, SCORE Chapter No. 3. Call 410-962-2233 to speak to a SCORE counselor or visit To send a question to SCORE representatives, e-mail

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