Trying to start a new business inevitably requires start-up financing. (No not for business cards and letterhead, for marketing and product! What you need are customers!)

If you can’t get a bank or SBA loan, and family members or friends aren’t an option, then angel investors are your only alternative.

The men and women with money to invest are a kind of venture capital in that they’ll let you have some of their money in exchange for a hunk of the business. No, they don’t just give you the money (we’re amazed how many people think that—but then 20% of the people in the US think the Sun rotates around the Earth too). But what if you just don’t know any people that have the kind of money and temperament to invest it in strangers, specifically you?

For starters, talk to your accountant, lawyer, or even your doctor to see if they know anyone. Don’t come off sounding like your asking them for money or the conversation could be short. “Do you know anyone that might be interested in investing in a new business I’m starting?” is a good approach. If it turns our they actually are interested, obviously they’ll say so. And if they have clients that might be interested they’ll tell you too.

It doesn’t hurt to align yourself with someone who can wow the finance / business community. Business is, well, business and it can be a dog-eat-dog world, but it is the sandbox you need to play in. Find someone who’s good at playing the game. The more seasoned the better. You want someone who’s taken a venture from startup to millions successfully. Use them as your front person while you do what you’re best at. But a word of caution: know who you’re dealing with. There are some scoundrels that will cozy up to you and your ideas, and then take you to the cleaners.

All of this describes a private investor or angel, specifically someone who brings more to the table than money. The average private investor invests about $40,000 per venture, and if you later need to raise bigger amounts of money the right investor can help you do that too. Most big cities have an economic development agency or university that organizes angel investors. There are also a few on-line angel networks.

Private investors or angels are successful folks who invest in businesses because they believe the returns they’ll receive will beat what they can make from more traditional investments. Angel investment is considered to be the largest source of risk capital in the small business economy, but paradoxically that doesn’t mean it’s easy to find. It would certainly make it easier if Angels would just wear signs proclaiming their interest in investing in businesses like yours. But, they don’t so you have to do a bit of detective work to track them down. Here’s a hint: if you go to venture forums where some organization brings investors and business owners together it’s a good guess that someone that doesn’t have a name tag on is an angel.

Most angels invest close to home. Often they’re people who know you or know someone who knows you. Most typically they can be found among your friends, family, acquaintances, professionals, suppliers, customers, and even competitors. As for the type of person you’re looking for, about 10 years ago the Center for Venture Research at the University of New Hampshire did a study that showed the average private investor: is college educated; 47 years old; currently or formerly self employed; has an annual income of $90,000; a net worth of $750,000; and invests, on average $37,000 per venture.

In many parts of the country, angel networks have formed to help bring investors and entrepreneurs together. Fees for these matching services are typically very low cost (less than $500) and are sometimes even subsidized by State funds. The most organized angel matching effort is Active Capital (formerly ACE-Net), a collaborative effort of the U.S. Securities and Exchange Commission, state securities regulators, the North American Securities Administrators Association, and the U.S. Small Business Administration’s Office of Advocacy.

One final note, you’ll really need a good lawyer to walk you safely through the process of raising money from investors. The laws are particularly sticky if you are raising money from someone with less than $1 million in assets or an annual income of at least $200,000 ($300,000 jointly with a spouse).

Though a bit dated, a good Inc. magazine article about where find angels is available here.

If you need help finding loans or investment money for your business, check out our all new, fully revised eBook, Finding Money—Secrets of a Former Banker.

So you’ve decided to go it on your own, work from home and build your own business. Was Dire Straits right when they said there’ll be, “money for nothing and chicks for free?”

Not to be a wet blanket, but banks are unwilling to lend to small startups, and venture capital is simply out of the question unless you consider a friend or family ‘angel’ a form of venture capital. Dunno about the chicks issue, especially since women are active and successful business owners too.

The four most common source of capital for small startups are: 1) borrowed money from friends, family, or others who know you, love you, or like you; 2) personal credit card; 3) home equity loans; and 4) SBA loans.

Credit Cards:
Many a large business started with the owner’s pocket-full-of-plastic.

The good thing about using credit cards to finance your purchases is that you don’t have to go through an elaborate loan approval process to find out if you qualify. Fill out one short form and you’ll have your answer. And, if you pay your bills on time, you’ll be building a good credit history that will help you when it comes time to apply for a larger loan.

The bad news about credit cards is that because they’re so easy to obtain, it’s easy to get in over your head and wind up more debt than you can handle. So start slow! Be careful about buying more supplies than you need just because the per-unit price is lower at higher quantities. Don’t borrow more than you can repay if things don’t grow as quickly as planned.

Many credit card issuers have very low teaser rates (0-4%). Just be sure you either pay the balance before the rate changes (usually in a 3-6 months) or pay it off with another low rate credit card. Be careful to read the fine print on the credit card agreement. Some companies impose large late payment penalties, offer very short payment terms (20 days versus 30 days), charge a much higher rate for cash advances, and, in addition, charge huge one-time fees for exceeding your credit limit, late payments, or cash advances.

When using personal credit cards for your business you’ll want to keep the accounting tidy by making your payments with a business check. It’s also wise to isolate certain cards for purely business purchases.

Home Equity Loans:
Assuming you own your own home and your credit is good, a home equity loan is a fast and easy way to fund your business startup. Many lenders will lend you up to 95% (and even 100%) of your home’s value (less the balance on your first mortgage) but they will want to see that you have a steady income that will support the payment. In other words, don’t quit your day job! Home equity loans are easier to get than business loans, typically offer lower interest rates, the interest is usually tax deductible, and they offer the protection of consumer interest laws (which business loans do not). BUT, you are putting your house in jeopardy if you can’t make the payments so be careful you don’t bite off more than you can chew.

SBA Loans:
Go to http://www.sba.gov/ for details about the most common types of SBA loans. Specifically focus your reading on the 7a Loan Guarantee, the Low Doc loan, and the Microloan programs.

Beyond “friendly loans”, home equity loans, credit cards, and SBA loans here are some other common, and not-so-common bootstrapping ideas from our book, Finding Money: The Small Business Guide To Financing.

• Leasing
• Local loan / grant programs
• Local non-SBA microloan programs
• Ask your local religious organization if they make business loans
• Find someone to co-sign your loan application
• Find someone to pledge their certificate of deposit on your loan
• Pledge someone else’s home on your loan (be sure to ask first)
• Investigate available grants: http://www.sba.gov/expanding/grants.html
• Use free publicity (by doing a charity event, contest, or other newsworthy event)
• Offer free / low cost service to a big name client, local Chamber of Commerce, business association, or church in exchange for publicity, testimonials, introductions to other customers, office space, etc.
• Share office space with an established business
• Have customer buy your raw materials / inventory
• Barter
• Do joint promotions with other businesses to reduce advertising costs
• Joint venture or co-op with another business
• Generate free publicity by writing articles for local newspapers

Many seasoned business owners never master the art of handling their finances and therefore fail or never realize their full potential. If you handle this first financing attempt right, your efforts will set the stage for a lifetime of easy financing. So be sure to only borrow what you need / can afford, and make every single payment on time. Follow those two simple principles and you’ll have credit card companies and other lenders begging to lend you money when you’re more established—or, paradoxically, refusing to talk when you need money the most.

If you need help finding money for your business, check out our all new, fully revised eBook, Finding Money—Secrets of a Former Banker.