Entrepreneurs Rely on Personal Savings, Second Jobs to Fund Critical First Year
Monday, October 14th, 2019
Small business owners rely heavily on personal savings and income from another job to fund their first year of operations, according to original survey data published by SCORE, mentors to America's small businesses. Notably, 60% of entrepreneurs have enough cash saved to support themselves for at least three months, despite the majority (78%) not seeking, much less obtaining, outside financing.
This original survey data constitutes part two of the Megaphone of Main Street data report on small business startups, and focuses on how entrepreneurs find financing during their critical first year.
Key findings from part two of the data report include:
New entrepreneurs started their businesses using personal savings (66.3%) and income from another job (27.6%).
In their first year of operations, most startups (78%) did not seek, much less obtain, outside financing, instead relying on personal savings or income from another job.
Within the 22% of startups who did seek funding during their first year, the most successful funding sources were loans from friends and family (77% successful) and loans from banks or other financial institutions (58% successful).
Half of new entrepreneurs are bootstrapping, while the other half are financially prepared.
42% of entrepreneurs were bootstrapping, starting out with less than $5,000 in cash reserves.
However, almost half (49%) began operation with more than $10,000 in the bank;
A quarter (24%) had more than $50,000.
New entrepreneurs spend outside funds on equipment, inventory and marketing.
63% of respondents used the outside funds they received on equipment.
48% of respondents used outside funds to purchase initial inventory.
41% used outside funds to lease or prepare a business location.
"Surprisingly few startups receive outside funding, forcing the majority of new entrepreneurs to get creative and rely on personal savings and income from other jobs to fund their first year of business," said SCORE CEO Bridget Weston. "SCORE offers an abundance of resources, including mentoring, online articles and workshops, to help entrepreneurs with their financial education so they can make informed decisions about how to successfully launch and grow their businesses."