Two Sources of Finance for Small Businesses

Two Sources of Finance for Small Businesses

Starting a small business is difficult enough but maintaining a small business can also prove challenging at times. Knowing the two main sources of financing for small businesses might help. There are multiple ways to keep a business going that require certain steps to be taken. However, if you are struggling with bankruptcy, then consider asking a Chattanooga bankruptcy attorney for advice.


The two main sources of small business financing are debt financing and equity financing. Debt financing involves money that needs to be paid back eventually. Equity financing involves money given to a small business, but the small business provides partial ownership to the source.

Many small businesses tend to find more opportunities for equity financing because debt financing requires more experience. Businesses that are just starting have less experience and fewer records to demonstrate a healthy financial track record. Debt financing provides more beneficial opportunities like lower interest rates when business credit scores and track records are healthier.

When it comes to building equity financing or debt financing, there are multiple options available. Options for building equity financing include selling company stocks to increase funds, implementing warrants for stocks, angel investors, and venture capital. Some small business owners turn to more creative sources like family members who, in exchange, take partial ownership of the business.

Examples of debt financing can also involve family members. The difference is that the family member will not own part of the company, but you will owe them a certain amount of money, sometimes with interest. Other examples include borrowing money from banks, commercial lenders, commercial finance companies, and the government. These all usually involve interest rates and expected due dates for repayment.

Other Ways to Finance Small Businesses

Equity and debt financing are not the only ways to fund and start a small business. Other ways to finance small businesses include building a business savings account and funding the business independently and applying for grants. The best part about grants is you do not have to pay them back.

Some companies can turn your 4019K0 retirement savings into funds to start your business. No interest rates or debt is involved. Strategies like inventory financing and purchase order financing can sometimes be effective ways to build or maintain funds to run a business.

Inventory financing works by paying off debt by selling products produced by the business. Purchase order financing works by having the lender of the funds pay for fulfilling a product order. The lender receives a percentage of the money paid by the customer and the business owner receives the percentage that remains.

Consider researching other methods for funding your small business. There are dozens of online resources with additional ideas.


Do not panic if you find yourself falling into bankruptcy. Feel free to call us at Tom Bible Law by dialing (423) 690-7712 for a consultation today to explore your financial options. Our legal team of Tennessee bankruptcy lawyers can help you explore your options for bankruptcy. We serve clients throughout the Tennessee cities of Chattanooga and Tullahoma.

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