Dr. Paul Borosky, DBA, MBA
Business Consultant & Author
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How to Fund a Small Business: Where Startup Money Comes From
The payment is the smallest number. Ask for the other three.
A dealer offered Mike Ridgeline $24,000 for 60 months at $533 a month. It sounded fine. The total payback was about $32,000. One question at the finance desk, and one phone call to a credit union, saved him about $2,400. Know what every dollar costs before you sign for it.
Last Updated: 10/27/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
Where Does Startup Money Come From?
Textbook Definition
Small business startup capital comes from owner equity, loans from family and friends, equipment financing, bank and SBA loans, credit cards, and alternative financing such as merchant cash advances. Each source carries a different cost, term, and risk.
In Plain English
Use your own money for what nobody will lend against, like startup expenses and working cash. Let equipment carry its own loan. Take family money only in writing. Treat credit cards and cash advances as a last resort.
Here is the part that surprises new owners: keeping your cash and borrowing for equipment is often the safer move. A truck earns money every day, so it can carry a loan. Working cash has to be there on day one, and no lender will lend against it.
Show the Math
One $24,000 Truck Loan, Four Ways
Same truck. Same amount borrowed. Watch the total interest, not the payment.
| Offer | Monthly payment | Total interest |
|---|---|---|
| Dealer: 11.9%, 60 months | $533 | $7,959 |
| Credit union: 8.5%, 60 months | $492 | $5,544 |
| Credit union: 8.5%, 84 months | $380 | $7,926 |
| Credit card: 24%, paid off in 60 months | $690 | $17,426 |
Figures from the book’s fictional Ridgeline Landscaping example.
The Method
How to Compare Startup Funding Before You Sign
Ask for four numbers on every offer.
The rate, the term, every fee in writing, and the total payback. Payment times months, plus fees, is the real price.
Compare on total interest.
Put offers side by side on total cost. The lowest payment is almost never the cheapest loan.
Match the loan to the asset.
Never pay for something longer than it lasts. A mower that lasts three or four seasons gets a 36-month loan, not seven years.
Put family money in writing.
Amount, rate, payment, start date, and what happens if a payment is late. Both sign. Both keep a copy.
Keep a one-page loan list.
Lender, amount, payment, payoff date, and whether you signed a personal guarantee. Read every page before you sign.
Personal Guarantees
Almost every startup loan needs one. The business has no history, so the lender is really lending to you. That puts your house, car, and savings on the line, even with an LLC. You usually cannot avoid signing. You can know exactly what you signed.
Pay Cash or Finance?
Cash in the Bank on Opening Day
| Opening day | Pay cash for truck | Finance the truck |
|---|---|---|
| Savings plus family loan | $38,000 | $38,000 |
| Truck (cash or down payment) | ($32,000) | ($8,000) |
| Mower down payment | ($4,500) | ($4,500) |
| Trailer and hand tools | ($9,000) | ($9,000) |
| Startup bills due in the first weeks | ($6,500) | ($6,500) |
| Working cash left | ($14,000) | $10,000 |
Ridgeline Landscaping, fictional, from the book.
Paying cash does not make the truck cheaper. It moves the problem to a credit card at 20% or more. For a deeper look at loan offers once you are open, see how to compare business loans.
Owner Warning
What Do New Owners Get Wrong About Funding?
- Choosing the loan with the lowest payment.
- Paying cash for equipment and leaving no working cash.
- Funding the startup on credit cards at 20% or more.
- Shaking hands on family money with no written note.
- Missing prepayment penalties buried in the paperwork.
- Signing a merchant cash advance without knowing its real cost.
From the Book
Family Money
Chapter 2 · Where the Money Comes From
Family Money, Done Right
Family money is the cheapest money you’ll find and the most expensive money you can lose. When a bank loan goes bad, you lose credit. When a family loan goes bad, you lose Thanksgiving.
Where the money comes from, what it costs, and how to sign without regret. It is all in the book.
Get the Book on Amazon →Going to a Lender?
SBA lenders and banks will ask for a business plan with real numbers. Dr. Paul writes plans with full financial projections that show exactly how the loan gets paid back. See business plan writing services.
Beyond the Book
From Reading Statements to Building a Business
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Startup Funding Questions
What are the most common ways to fund a small business?
Is it better to pay cash or finance equipment for a new business?
How do I compare two business loan offers?
How much can I borrow through an SBA microloan?
Keep Going
Related Guides
This guide is part of the small business finance guide.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and adjunct finance instructor with an MBA focused in finance.
This page is for general educational purposes only. It is not legal, financial, tax, accounting, or lending advice. Tax rules change by place and by year. Ridgeline Landscaping and its figures are a fictional illustration from the book, not a projection for your business. For decisions about your own business, consult a qualified professional.