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Smallest Startups Rely On Personal Funding Sources

Smallest Startups Rely On Personal Funding Sources
Credit: Cervantes/Shutterstock

Rather than using traditional loans to fund their businesses, the majority of small business owners dig into their own bank accounts to keep their companies afloat.

More than 60 percent of microbusiness owners rely on non-retirement, personal savings as the lead source of funding for their businesses, according to the Sam's Club/Gallup Microbusiness Tracker. Additionally, U.S. microbusinesses — defined as those with five or fewer employees — started in the past year are 30 percent more likely than mature companies to use the owners' personal savings to maintain the business.

Other popular sources of funding for microbusinesses include credit cards and money from family and friends. The research revealed, however, that less than 3 percent of U.S. microbusiness owners rely on government loans, small business loans or crowdfunding to support their businesses.

The study found that over the past year, 40 percent of microbusiness owners have had to dip into their personal or retirement savings in order to improve their businesses' bottom lines. That practice has given them significant anxiety over their golden years. Nearly 45 percent of those surveyed said they are worried about having enough money for retirement.

Surprisingly, the research shows that the more money microbusiness owners make, the more they worry. Nearly half of microbusiness owners generating at least $50,000 in revenue per year are anxious about saving for retirement, compared to just 42 percent of those making less than $10,000.

Despite their concerns over retirement, the majority of those surveyed are optimistic about the future. While more than half of owners predict the economy will worsen, 70 percent say they are energized by their work and six in 10 express confidence that they have the talent to grow their companies.

"Despite concerns over worsening economic conditions, U.S. microbusiness owners are confident in nearly every dimension of work and life," Rosalind Brewer, president and CEO of Sam's Club, said in a statement. "This vital segment of the U.S. economy is passionate about their choice to pursue a small business venture and unwavering in their commitment to serving consumers with an intense focus on quality no matter how many other factors or challenges they may face."

The quarterly study was based on surveys of 1,004 U.S. firms with five or fewer workers.

Originally published on Business News Daily

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.