Convenience

Financing the New Business
Although the choice of how to start is obviously important, it is meaningless unless a
new business owner can obtain the money to set up shop. Among the more common
sources for funding are family and friends, personal savings, banks and similar lending
institutions, investors, and government agencies. Lending institutions are more likely to
help finance the purchase of an existing business than a new business because the risks
are better understood. Individuals starting up new businesses, on the other hand, are
more likely to have to rely on their personal resources.
Personal Resources
According to a study by the National Federation of Independent
Business (NFIB), an owner’s personal resources, not loans, are the most important source
of money. Including money borrowed from friends and relatives, personal resources
account for over two-thirds of all money invested in new small businesses and one-half
of that invested in the purchase of existing businesses. John Mackey started Whole Foods
with a $10,000 loan from his father. Fred Smith used $4 million he had inherited from his
father to launch FedEx. And Rebecca Boenigk started Neutral Posture, an ergonomic chair
company, with personal savings and loans from several family members.
Chapter 5:
Entrepreneurship and New Venture Management
1 4 3
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