While federal, state and local policies aim to support entrepreneurs through grants and tax breaks that make capital more easily attainable, the latest Entrepreneurship Policy Digest released by the Kauffman Foundation, America's leading entrepreneurship think-tank, says entrepreneurs most often turn to two forms of private external financing: debt and equity.
The Policy Digest says debt is the most common source of financing for new businesses, with about 40% of a business’ initial startup capital coming from bank-financed debt. Equity is a less common form of initial funding, according to the Digest, with less than 3% of new firms funded by angel investors and less than 1% funded by venture capitalists.
The digest also highlights new forms of funding, such as crowdfunding. In the first half of 2014, more than 20% of new startups went through online lenders when applying for loans.
The digest also examines public programs that affect entrepreneurial financing, including:
- The Jumpstart Our Business Startups (JOBS) Act of 2012;
- Small Business Innovation Research (SBIR) grants;
- State research and development programs;
- Public venture funds.
Business dynamism/ employer firm startups in US secular decline