The specific types of equity financing available to you are, to some extent, determined by the organizational form of your small business. While your choice of business form or "entity" for your small business involves a wide spectrum of other important issues — such as the degree of personal risk involved in the type of business, tax considerations, and the need to attract good business managers — the following discussion highlights some of the financing considerations associated with different forms of business entities.

Equity financing requires that you sell an ownership interest in the business in exchange for capital. The most basic hurdle to equity financing is finding investors who are willing to buy into your business; however, the amount of equity financing that you undertake may depend more upon your willingness to share management control than upon the investor appeal of the business. By selling equity interests in your business, you sacrifice some of your autonomy and management rights.

A brief overview of the basic types of financing may be helpful to understanding which options might be most attractive and realistically available to your particular business. Typically, financing is categorized into two fundamental types: debt financing and equity financing.

Our "quick pick" chart of suggested financing options is loosely arranged according to the general age of a business and whether the financing is for long-term or short-term needs. Just find your profile in the chart, and click on one of the options to read more about it. However, keep in mind that our arrangement of financing options merely reflects how each option is often used, not how the option is always used. Most of these types of financing may be used, under certain circumstances and in certain businesses, throughout the life cycle of a business.

After considering their personal resources, the next place most entrepreneurs look for additional financing is to "insiders" like family, friends, or business associates. Borrowing from insiders is attractive because it's private, often informal, usually unsecured, and often includes favorable terms, and because legal default proceedings are seldom invoked. In addition, this kind of financing can often be incorporated into a family's estate plan to assist in minimizing estate and income tax liabilities.

Most small startup business are initially funded by the personal assets of the entrepreneur. Some funding for your small business is likely to come from your direct contributions of personal savings or assets to the business (e.g., an early retirement incentive payout). Additional personal funds are often contributed after the entrepreneur borrows money through a personal (consumer) loan and then contributes that money as an equity investment into the business.

Bootstrapping is a buzzword that basically means generating needed funds by deftly managing your cash inflows and outflows. Improving cash flow should be a daily task, like housekeeping.

Because the costs of a startup business are often underestimated, new entrepreneurs should consider completing, at a minimum, a few basic financial statements even before they attempt to estimate how much money they will need.

Whether you want capital for startup costs, short-term operating costs, or long-term strategic development, you must accurately estimate the amount of money you need. Preparing a realistic projection of the necessary funding will not only force you to consider the wide variety of costs associated with your plans, but also help convince a lender or investor that you understand your business and the relevant market realities.

Every small business owner is convinced that the enterprise will be successful and that investors can be persuaded by these convictions. However, to obtain financing, you will need to provide objective evidence that your business will succeed.

In order to successfully obtain a mortgage, real estate must have three legendary ingredients: location, location, and location. But it also helps if the building looks inviting, has an interesting history, and is surrounded by a few elegant trees.

Many businesses never reach this stage of the business life cycle because they either fail at an earlier stage or they remain healthy, growing entities. An aging business is characterized by a conservative philosophy aimed at maintaining the business's internal bureaucracy and its market status quo.

In many respects, the financing options available when you purchase an existing business are similar to the options for raising capital in a growing business that you already own. Debt and equity vehicles are typically more available to you than if you were starting a similar business from scratch. Because the target business has a credit history, existing assets, an established operating cycle and business goodwill, lenders and investors can be approached in the same manner as if you were seeking to expand a business you already owned.

A growing or mature business usually has sufficient stability in its operations so that cash flow problems are not a constant crisis. If the business is successful, internally generated funds from sales and investments can fund many of the business's needs.

Where your business is in its financial life cycle — from startup to aging — will often dictate the availability of certain financing alternatives.

Most entrepreneurs consider their resource pool to consist of whatever personal assets they're willing to sink into the business, and whatever money they might be able to get through a local bank loan. Yet, a number of alternative (or additional) financing options may be available to you.

Startup businesses often begin with only ideas and enthusiasm. One of the many issues that every entrepreneur must address in starting a small business is the financial reality involved in deciding exactly what he or she wants to do, when it can be done, and how it's going to be done.

The perception that many small business owners have is that financing means taking whatever money you can get; the faster and easier you can get it, the better. Unfortunately, this approach doesn't take into account the fact that getting money for your business involves a variety of considerations, financial and nonfinancial, good and bad.