Friends, Family Are Significant Sources Of Capital When Starting A Business

Friends and family are significant sources of capital for start-up founders. Data from ratings and review platform Clutch found that 57 percent of business owners used these personal investments for funding when first starting their business, making them the most common source of capital when it comes to external investments.

Nearly one-quarter (22 percent) of people who started a business relied on loans or investments from friends and family within the first three months. After the first three months, nearly one-fifth (19 percent) of business founders turn to these groups for funding.

Although business founders rely on friends and family for external funding, 64 percent said they were uncomfortable asking them for money to start their business. Only one-quarter of business founders (25 percent) said they felt comfortable asking their parents for money to fund a startup and only six percent each for friends and siblings. Even for the 25 percent who are comfortable approaching family members for funding help, less than one-fifth of friends and family members asked will give a business founder money to start his or her business.

Starting a business may be hard, but the process is made less stressful by the fact that three-quarters of business founders (73 percent) said they have never been denied access to capital. Clutch’s survey also found that 69 percent of people said they obtained enough financing for their business within its first six months. Even more encouraging, only six percent were denied access to capital three to five times.

However, despite receiving adequate funding for their startups, 55 percent of business founders said their businesses no longer exists or was dissolved. Clutch notes that starting a company is always risky, but the economic challenges brought by the COVID-19 pandemic certainly made it even more difficult.

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