Raising business capital: how do you get money to start or maintain a business? There are many ways.

• Author: Saunders, Stacey

The biggest question entrepreneurs have is "How do I get my business funded?" says Steve Schellong, co-founder of the Alaska-based GrantStation.com, an organization dedicated to helping nonprofit organizations try to secure funding for operations.

The next question is "How do I stay in business." With good reason.

According to the Department of Community and Economic Development, Division of Community and Business Development, the majority of the approximately 1.4 million businesses started annually in the U.S. will fail within four years. "The reasons for failure vary, but the most common are insufficient start-up capital, poor business planning, lack of management skills, cash flow problems and inadequate cost controls," states a report issued by the DCED.

David Hoffman, president and CEO of Alaska Growth Capital, describes six sources of business capital: credit cards, family and friends, angel investors, venture capitalists, high-risk debt and conventional bank loans. Grants provide yet another source of funding for select, specialized types of businesses. Each source presents trade-offs for fledgling businesses to consider when seeking money to set up, furnish and operate their businesses until they generate enough cash flow to be self-sustaining.

CREDIT CARDS

According to Hoffman, credit cards are usually the first source of funding. "It's easy to run up $40,000 in credit card debt. The downside is that it's expensive (for example, credit cards usually offer higher interest rates than traditional loans) and that usually bites them." High credit card balances can make entrepreneurs less attractive to banks.

BORROWING FROM FAMILY AND FRIENDS

Hoffman refers to this source as "FFF-Family, Friends and Fools." However, he says borrowing from family and friends is a fairly informal, but important source for a small business. Typically, entrepreneurs raise up to $50,000. In "Arctic Inspirations: Rural Women Starting Small Businesses and Creating Personal Success," author Linda Chamberlain recounts stories by female entrepreneurs in rural Alaska, Canada and Russia. Many borrowed part of their seed money from family members and friends. The book cautions that borrowing from friends and family can lead to misunderstandings, especially if the loan is not repaid on time.

ANGEL INVESTING

Think of the little gray-haired ladies who write checks to Max Bialystock in the Broadway hit "The Producers." The concept, "angel investing," originated with private investors who provided financial backing for Broadway productions, notes Deborah Marshall, director of Alaska Invest-Net. Invest-Net is a nonprofit agency that helps match entrepreneurs with private investors, a.k.a. angels. Hoffman, a member of InvestNet's governing board, describes angel investors as classically retired, financially well-off individuals who want to feel needed and offer capital and advice to new businesses with the hope of making money, but also with altruistic purposes in mind. He says angels are hard to find.

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