Like all financial decisions, borrowing money for a business venture can come with different challenges and advantages. Only 3.5% of all entrepreneurs anticipated paying off their payment method in less than a year.Įntrepreneurs Experienced Different Challenges Based on Funding Methods In particular, the four- to six-year repayment time frame is most common among entrepreneurs who utilized business loans or sourced funding from friends and family. Thirty-three percent said their debt payoff term was four to six years, the most common response. The majority of entrepreneurs-75%-anticipated that it would take more than four years to pay off their initial funding. Entrepreneurs Anticipate Taking Over Four Years To Repay Debt On the other hand, 59% percent of entrepreneurs who borrowed from someone they know and 71% who drew from personal savings allocated the bulk of their funding towards setting up a website or a physical store. Another 45% used their resources to set up a website or physical store and 42% used funding to cover inventory.įor entrepreneurs who chose a business loan, inventory accounted for the biggest allocation of funds. Despite the popularity of online shopping and online storefronts, many entrepreneurs run brick-and-mortar operations.Īmong all surveyed entrepreneurs, 52% percent used funding to pay rent or monthly recurring utility costs. Starting a business can come with many startup expenses, from licensing fees to production and marketing costs. Twenty-seven percent of those who borrowed from friends and family relied on between $55,001 to $85,000. Thirty-seven percent of entrepreneurs who chose business loans and 21% who drew from personal savings relied on this amount to fund their venture.Įntrepreneurs who had a personal network to tap into for capital tended to secure larger funding amounts. How Much Funding Do Entrepreneurs Use To Start a Business?Īmong all funding methods, $25,001 to $55,000 was the most commonly reported funding amount used to start a business. For that reason, 46% of entrepreneurs drew from personal savings and avoided financing to launch their businesses. For 42% of entrepreneurs who borrowed money from family and friends and 39% who used personal credit cards, repayment flexibility was why those chose their funding method.Įven with flexible terms, depending on loans and credit cards meant business owners had to go into debt to fund their ventures. How an entrepreneur decides to fund their business-whether through borrowing or drawing from savings-depends on several factors.Īmong business loan recipients, 46% opted for loans due to the flexible repayment timeline. Why Do Entrepreneurs Choose Certain Methods of Funding? Some experts predict the Fed may start cutting rates in the second half of 2024, which could mean more competitive credit card interest rates are on the horizon. The cost of credit has soared over the last few years after multiple Fed Fund rate hikes, making credit card borrowing more expensive and likely less appealing.įrom August 2021 to August 2023, commercial credit card interest rates saw a 46% increase, moving from 14.54% to 21.19%. Sixty-six percent of entrepreneurs refrained from using credit cards for fear of damaging their credit score, while 61% avoided credit cards because they needed a higher credit line and 45% wanted to avoid high interest rates. Using personal savings, which business owners used to avoid debt payments and interest, was the third most popular way to fund a business.Ĭredit cards were the least common funding method-just 8.4% of entrepreneurs surveyed used this method. Loans from friends and family were the second most popular funding method, with one in five entrepreneurs surveyed opting for this funding method. Most Common Methods of Business Financingīusiness loans were the most common financing method for businesses, the 2023 survey by Forbes Advisor found. Three in four entrepreneurs anticipated that paying off their initial funding would take more than four years. Meanwhile, 45% spent the funding to set up a website or physical store and 42% used funds to cover inventory. A little over half of entrepreneurs said they used funding to pay for rent or monthly recurring utility costs.Another 22% said the biggest drawback of their financing method was funding limitations and 21% said high interest rates or fees. About 30% of borrowers said the biggest pitfall of borrowing was managing debt repayments.Sixty-five percent of entrepreneurs said more access to capital was an advantage of their chosen financing method.The second most popular method of funding was borrowing from family friends, an option used by 20% of entrepreneurs.Business loans were the most popular business funding method, with 27% of entrepreneurs surveyed using them as their primary financing source.
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