Banks are a classic source for business loans, Inc. explains. Loan-seekers will usually be required to produce proof of collateral or a revenue stream before their loan application is approved. Because of this, banks are often a better option for more established businesses.
Angel investors are individuals with an earned income that exceeds $200,000 or who have a net worth of more than $1 million. They are found across all industries and are useful for entrepreneurs who are beyond the seed stages of financing but are not yet ready to seek out venture capital.
Peer-to-peer lenders are individuals or groups that offer funding to small business owners, Time reports. To work with these investors, entrepreneurs must apply with companies that specialize in peer-to-peer lending, such as Prosper or Lending Club. Once their application is approved, lenders can then determine the businesses they wish to support.
Venture capitalists are used only after a business begins to show a significant amount of revenue. These investors are notable, as they usually invest a substantial amount of money (often around $10 million). They gain most of their returns through “carried interest,” or a percentage received as compensation from the profits of a hedge fund or private equity.
Business owners often rely on family, friends or close acquaintances to invest in their companies, particularly in the beginning. However, there is a limit to how many of these individuals can invest in startups because of legal limitations.