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There are various sources of finance available to small businesses, each carrying different benefits and costs. It is important to carefully evaluate your specific requirements and determine which sources of finance are best suited needs of your business.

Typical sources of finance include:

• Personal savings
• Credit cards
• Friends and relatives
• Angel Investors
• Leases
• Bank Loans

Based on a review of your financing needs and the various costs and benefits of different sources available, you can determine from which source to seek your finance.

Financing the start-up of a business yourself by using your personal savings, taking out an equity loan on your home or through credit cards is usually the easiest and sometimes the cheapest financing option. However investing your own funds involves a level of personal risk that you need to carefully consider.

Obtaining finance from friends and relatives also presents a cheap and flexible alternative. However, it is important to remember that involving friends and relatives as investors can get complicated and end up affecting your relationship with them.

Business angel investors provide financing in return for an equity stake or a share in your business. Selling equity in your business generally triggers various legal, taxation and accounting consequences^[1], so you may wish to seek professional advice before accepting financing from an investor.

Leasing involves a financier purchasing the equipment that you require and then leasing it to you in return for regular rental payments for the duration of the lease term. At the completion of the lease term, you are offered the option of purchasing the equipment at an agreed residual value.

Bank loans are the most common source of funding for a small business. Examples of bank loans include:

• Term loans: A loan paid back over an agreed period (term) where principal and interest are paid off in monthly repayments.^[2]

• Mortgages: used to finance the purchase of land and buildings. It is generally repaid by regular instalments including principal and interest.^[3]

• Bank overdrafts: borrowing up to a certain amount from your bank when the need arises, allowing for flexibility and convenience.

^{[1] English, J. 2006. How to Organise & Operate a Small Business in Australia, 10th edn, Allen & Unwin, Crows Nest
[2] NSW Small Business
[3] English, J. 2006. How to Organise & Operate a Small Business in Australia, 10th edn, Allen & Unwin, Crows Nest}