ISSUE 009
The First Dollars
The thing people want when they ask about funding is a list of programmes. The thing that would actually help is knowing what the distribution looks like, because almost every founder I talk to believes their own situation is the unusual one. It isn't. The Census asked this question in 2017 and the answer is so mundane that nobody repeats it, which is exactly why I am.
An idea worth thinking about
Count firms and you get savings. Count dollars and you get a bank.
Alicia Robb and David Robinson published a paper in the Review of Financial Studies in 2014 that takes the folk account of startup funding apart. The folk account says new firms cannot get formal credit, so they run on savings, credit cards and money from relatives. Robb and Robinson followed 3,972 American firms started in 2004 and added up where the money came from in dollars, not in mentions.
Their average firm had $109,016 of financial capital in its first year. Of that, outside debt — overwhelmingly bank loans — was $47,847, or 43.9 percent. Owner equity was $31,734, or 29.1 percent. Outside equity, which includes venture capital and angels, was 14.6 percent. Personal credit cards came to 4.6 percent. And the family-and-friends money that dominates the folk story? Inside debt and inside equity together were 7.7 percent. Outside debt was roughly seven times inside debt.
Set that against the Census figures in slot five and the two look like they are contradicting each other, and they are not. Census counts firms that used a source at all. Robb and Robinson count dollars. Most firms use savings; most dollars come from a bank, because the minority of firms that borrow borrow a great deal. Both sentences are true at once and almost every piece of funding advice you will read picks one and hides the other.
Two caveats I will not skip. The cohort is firms started in 2004 and tracked through 2007, recruited into a panel study — the same filtered-sample problem entry 005 ran into, where the businesses that agree to a multi-year research project are not the average business. And the paper overstates itself in one place: the text says roughly 80 to 90 percent of startup capital comes from owner equity and bank debt, while its own table shares add to 73 percent. I am reporting both rather than picking. The authors' own framing is the part worth keeping: when a bank lends against your house, you are not an entrepreneur with outside funding, you are an owner with a levered stake in your own business.
A tool I disappeared into
The actual average credit card rate, updated monthly, free
Since 8.6 percent of American employer businesses started partly on personal credit cards carrying balances, and the figure rises to 11.2 percent among firms less than two years old, here is the number that turns that into a cost. The Federal Reserve publishes the average interest rate commercial banks charge on credit card plans across all accounts, monthly, in its G.19 consumer credit release. The St. Louis Fed hosts it free on FRED as series TERMCBCCALLNS.
At the time I am writing this, the most recent observation is 21.19 percent, for August 2026. That number will have changed by the time you read this, which is the point of linking the series rather than quoting it — the chart goes back decades and you can download the whole thing as a spreadsheet in two clicks, no account.
Do the arithmetic once and it stays done. Twenty thousand dollars of start-up cost carried on cards at 21.19 percent is about $4,240 a year in interest before you repay a cent of principal. For a business whose first-year profit is uncertain, that is a fixed cost competing with your own wages. It does not make card funding wrong — for a great many small businesses it is the only money available on the day it is needed — but it does make it expensive in a way that "bootstrapped" obscures.
The limit, stated plainly: FRED does not document the methodology on the series page, and "all accounts" is an average across the whole banking system, not an offer anyone is making you. Your actual rate depends on your credit file. Use it as a floor for what card money costs, not as a quote.
Learn something
Thirteen free modules from the FDIC, and the one thing they do not cover
Money Smart for Small Business is a free curriculum built jointly by the FDIC and the Small Business Administration. Thirteen modules, downloadable, no account, and the FDIC states outright that the materials are free of copyrights and can be edited for any audience — so a chamber of commerce or a lender in Poplar Bluff can take the slides and teach them without asking anyone. The page was last updated in January 2024.
The modules are: Is Owning a Business a Good Fit for You, Planning for a Healthy Business, Banking Services, Organizational Types, Time Management, Financial Management, Recordkeeping, Strong Business Credit, Risk Management, Insurance, Tax Planning and Reporting, Selling Your Business and Succession Planning, and Managing Cash Flow.
For this entry the two that matter are Banking Services and Strong Business Credit. The second one is the under-rated half of the funding question: a business credit file is a separate thing from your personal one, it gets built deliberately rather than by accident, and most owners discover it exists at the moment a lender declines them. Managing Cash Flow is the module I would actually start with, because the reason most small businesses need outside money is timing rather than capital.
The honest limit, and it is a real one. There is no module on raising money. Nothing on how to approach a lender, what a loan package contains, or how to compare offers. The curriculum is about running the business well enough to be fundable, which is the right order and is not what somebody arriving with a funding question is looking for. Know that before you spend an evening on it.
What we’re seeing
64.5 percent started on personal or family savings. Half a percent on venture capital.
In 2017 the Annual Business Survey asked American employer businesses what they used to get started. Of the firms that answered, 64.5 percent named personal or family savings. A business loan from a bank or financial institution came second at 16.6 percent. Then personal or family assets other than savings at 8.7 percent, personal credit cards carrying balances at 8.6 percent, business credit cards at 5.6 percent, and a home equity loan at 5.4 percent. A loan or investment from family or friends: 3.8 percent. A government-guaranteed bank loan, which is mostly SBA: 1.6 percent. Grants: 0.2 percent. Venture capital: 0.5 percent. Firms could name more than one source, so the percentages add to more than a hundred.
Now the amounts, from the same table. 16.6 percent of firms started with less than $5,000. Another 8.0 percent with $5,000 to $9,999 and 10.4 percent with $10,000 to $24,999 — so around a third of American employer businesses began on under twenty-five thousand dollars. Only 2.1 percent started with a million or more. A fifth of respondents said they did not know, and 10.4 percent said no capital was needed at all.
Narrow it to the youngest firms and the picture gets more self-funded, not less. Among businesses less than two years old in 2017, 70.4 percent used personal or family savings, 12.1 percent a bank loan, 11.2 percent personal credit cards, and 1.0 percent venture capital. Nearly one in five started on under $5,000.
Three things this number cannot tell you, and I would rather say them than have them found. It is nine years old; this is the most recent Census cycle that asked the question, and it does not appear in the 2018 through 2023 files, which I checked one by one. It covers employer businesses only, so the twenty-eight million American businesses without employees are not in it. And 3,153,971 firms answered out of 5,744,643 — a bit over half — with another 12.3 percent of respondents saying they did not know where the start-up money came from, which is its own quiet finding about how these decisions get made.
The other thing to hold onto is slot two, because the two sources genuinely disagree and the disagreement is instructive. Count firms and savings wins at 64.5 percent. Count dollars, as Robb and Robinson did, and bank debt is 43.9 percent of capital against 29.1 percent from the owner. Most businesses are funded by their owner; most start-up money is funded by a bank. Which sentence applies to you depends on which half of the distribution you are in, and the amounts data says most readers of this are in the half where $25,000 is the whole question.
So here is the practical version for a business in Cape Girardeau or Kirksville. Venture capital is not a funding option; it is funding 0.5 percent of firms and it is not funding yours. The realistic ladder is your own savings, then a bank that will want collateral and will probably look at your house, then cards at twenty-one percent, and the ordering matters because each rung costs more than the one before. Write down the actual number you need to start before you go looking — if it is under $25,000 you are in the most common group in the country, and the question is not where to find investors, it is which of those first three rungs you can reach without betting the house.
One question
What is the actual number you needed, or would need, to start?
Not the number in a plan. The one you would have to put on a card or ask a bank for next Tuesday. One figure.
More in this pillar as it's written.
— Shana
Sources link to the original publisher, never to a summary.