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22% of Founders Rely on Friends and Family for Capital When Starting a Business, New Study Finds

October 9, 2020

by Mandile Mpofu

While investments from financial institutions are typically top of mind when launching a startup, new business founders mostly lean on people within their personal circles, according to a survey of 501 business founders in the U.S.

WASHINGTON, D.C. October 8, 2020 — New data from Clutch, the leading B2B ratings and reviews platform, revealed that nearly one-quarter (22%) of people who started a business relied on capital such as loans or investments from friends and family within the first three months.

Unsurprisingly, 57% of business owners used personal investment as a source of capital when first starting their business. When it came to external investments, friends and family were the most common source of capital.

After the first three months of starting their business, one-fifth (19%) of business founders relied on capital from friends and family.

Most Business Founders Are Uncomfortable Asking Family for Money

Even though business founders rely on friends and family for external funding, 64% said they were uncomfortable asking family members for money to start their business.

64% of business founders are uncomfortable asking their family for money to start their business

Only one-quarter of business founders (25%) said they felt comfortable asking their parents for money to fund a startup and only 6% each for friends and siblings.

Even for the 25% 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 her business. This increases the number of people founders have to approach to fund their business.

Most Business Founders Are Never Denied Access to Capital

Starting a business may be hard, but the process is made less stressful by the fact that a whopping three-quarters of business founders (73%) said they never were denied access to capital.

Clutch’s survey also found that 69% of people said they obtained enough financing for their business within its first 6 months.

Even more encouraging, only 6% were denied access to capital three to five times.

While these findings offer a source of hope for those looking to start businesses, they also raise the question of why there is a disparity in access to funding between White and BIPOC business owners.

More Than Half of Business Founders Said Their Company No Longer Exists

Despite receiving adequate funding for their startups, 55% of business founders said their business no longer exists or was dissolved.

Starting a company is always risky, but the economic challenges brought by the COVID-19 pandemic made it even more difficult.

Clutch surveyed 501 business founders on their sources of funding and challenges when starting a business.

Read the full report here:

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