Carefully consider personal loans.
Many people opt for personal loans in the forms of credit cards and home equity loans and lines of credit in order to fund their start-ups. They do this for two reasons—either they can't get actual business funding (or they don't think they can) or they believe this sort of funding will be cheaper. If you can get a great deal on a home equity loan (7 percent, tax-deductible, works out to be about 5 percent for most people—and that is cheap money), it may seems like a very inexpensive way to go. The problem is you're putting your home on the line. Likewise, if you charge up your credit cards to start a new business, realize that you're putting your personal credit score and family's financial health at risk. That's why I'm a big fan of trying to keep the business and the personal separate.
Get some free advice.
Score.org is a group of counselors—largely retired entrepreneurs, accountants, lawyers, etc., 10,000 of them!—who are available to help with your start-up. They've helped get some pretty big-name businesses off the ground, among them Vera Bradley and Vermont Teddy Bear. And their free advice is available to help you wade through the challenges of getting start-up financing.
Still want to ask family and friends?
The Bank of Mom and Dad may seem to be the best place to go to for the cash you need, especially if you need it in a hurry. But borrowing from relatives (even close ones) or friends can be a very quick way to put a hitch in an otherwise solid relationship. That's why I like the framework offered through Circle Lending (circlelending.com). When you borrow money from your nearest and dearest using its program, you do it with paperwork, a payment schedule and a plan to follow if and when you can't make a payment. Interest is optional. Your lenders can charge it if they chose to, but many do not.
Are things starting to fall into place? Find out why you shouldn't quit your day job quite yet.