Note: This survey was conducted before the recent economic downturn caused by COVID-19. It may be more difficult now to get traditional funding through a bank loan or investor. One major difference in our current situation is the relaxed criteria for SBA Economic Injury Disaster Loans, which require far less documentation and are based on proof of economic injury due to the coronavirus.

However, the results of this study are still relevant and will most likely represent the typical funding landscape post-coronavirus.

Palo Alto Software (maker of LivePlan) recently asked our community of small businesses and people considering starting a business to share their perceptions of getting access to capital. First, we wanted to understand whether people felt like they had access to funding options and why.

Who answered the survey

We asked our Bplans readers and subscribers to complete the survey and asked our partners to share with their communities through social media and other methods.

74 percent of those who completed our survey were between 18 and 44 years old, and they’re from communities around the world. More than 70 percent were male, the majority had at least a bachelor’s degree. More than two-thirds said they’d already started or were in the process of launching a business, while 20 percent said they haven’t yet started.

Here’s what small businesses told us about how they’ve funded their new businesses.

Many small businesses bootstrap for the first few years

70 percent of those who had an up and running business stated that they were self-financed or got funding from family and friends in their first few years.

Some said they were seeking Kiva loans. Others said they were using their own income and savings or trying to spend less personally so they could put cash into their businesses.

If you’re trying to bootstrap your business, here are some resources to help you think through all your options:

• •How to Decide Whether to Bootstrap Your Business
• •10 Best Side Businesses to Fund Your Startup
• •Why Bootstrapping Might Be the Best Way to Fund Your Startup

No collateral or bad credit—you’re more likely to be turned down

46 percent of respondents said they’d been turned down for a bank loan or by an investor. Many said it was because they didn’t have collateral to back the loan, or because their personal credit wasn’t good enough.

This tracks with what we know about small business loans—it’s a lot easier to get an SBA loan when your business already has traction. If you don’t have assets already, or initial revenue coming in, it’s going to be hard to get a bank loan, so many people bootstrap in the beginning.

If your credit isn’t great and you’re thinking of starting a business, here are some resources to help:

• •Can I Get a Business Loan if My Credit Is Terrible?
• •What Every Business Owner Needs to Know About Personal Credit
• •The 5 Cs of Making Your Business Credit Worthy

A lot of people felt like they’d experienced discrimination

43 percent said either they experienced discrimination when they applied for funding, or they thought they had but they couldn’t prove it. Unfortunately, implicit bias exists—people do experience discrimination.

What can you do about it? Start with making sure your business plan is in top-notch order; put together a strong set of financials. And if at first, you don’t succeed, don’t give up.

• •Venture Capital and the Sexism You Can’t Quite Prove
• •Key Elements of the Financial Plan
• •How to Write a Business Plan for a Bank Loan

Lack of access to capital is a major reason businesses don’t launch

Of those who responded to our survey who hadn’t started a business, more than 80 percent said that a lack of access to capital was one of the major reasons they didn’t launch their business.

Not a huge surprise, since so many businesses are bootstrapped, and because it’s hard to get an SBA loan without collateral and some established traction in the marketplace.

One way to make starting a business more financially feasible is to start by putting together a lean business plan to validate your business idea. Writing up a short business plan is an exercise that helps you look at every aspect of your business, starting with whether there’s a market need for the problem your business solves. It’s much faster than a traditional plan and helps you define your business idea in a concise manner that is perfect for pitching to investors.

• •Lean Planning: How to Plan Less and Grow Faster
• •How to Validate Your Business Idea
• •How to Estimate Realistic Startup Costs

The perception is that starting a business is really difficult

30 percent of respondents said that when they were starting their business, other people told them it was going to be hard for reasons related to their socioeconomic status and age.

Of those who hadn’t yet started a business, the majority said they felt like it was going to be really challenging to get up and running—if not impossible.

So if you’re thinking about starting a business, should you be discouraged by the challenges of getting it off the ground? To answer that, start by assessing your tolerance for risk. Entrepreneurship and small business ownership always involve some level of risk, which might not be the right path for some. But keep in mind that it is not impossible and that there are thousands of successful small businesses in the US alone.

The good news is that you don’t have to go all-in right away. Avoid investing a huge amount of resources and cash into an untested idea; instead look for ways to start small, maybe while you still have another source of income. Test your idea, survey potential customers and even start with a soft-launch of your business to gauge interest. Identify what works and what doesn’t, then make a plan for growth.

• •How to Start a Business While You’re Still Employed
• •Why Risk-Takers are Winners (and Why All Entrepreneurs Should Take Risks)
• •Think Big But Start Small

More resources for accessing funding for your business

If you’re looking for loans, investment, or trying to think through your bootstrapping options, check out Bplans’ guide to funding your business. From there, one of the best ways you can make the most of the cash you do have access to is to develop a business plan that you review regularly. Don’t just set up a budget, create forecasts for sales and cash flow. Revisit them regularly and make adjustments based on your actual progress, to assure you have the most accurate insights as to what the future may hold.

Starting a business may be challenging, but it’s not impossible. As long as you have a solid plan in place and stick to it. Good luck!