There are many ways to finance a business. A lot depends on the type of business, what stage the business is in (start-up, growing, mature, etc), and the long-term strategy of the business.
The most common way entrepreneurs finance a business is by using their savings, and/or personal lines of credit (credit cards), and probably the second most common way is by borrowing against personal assets or by borrowing from family members.
Established businesses are more apt to secure lines of credit, term loans, or attract additional investors to assist them with expansion projects.
If equity is needed, an entrepreneur or expanding business may consider approaching a venture capital group or attracting the interest of angel investors.
Before you enter into financing agreements, equity arrangements, or spend a lot of money applying for loans and grants, you should have a good understanding of how your actions will affect your business decisions in the long term. For example, what do the equity investors expect in return and what role will they play in the operation of your business? Will personal assets be required as collateral? How will this affect your ability to secure additional financing if needed?
There are many types of financing instruments that may be considered and evaluated. NOLO provides a good list of Business Financing Frequently Asked Questions. In addition, for some great insight into how to raise money for a new or growing business, go to Entrepreneur.com.
The Myth About Grants
Finally, you may have heard that there are grants to start or expand a small business. In reality, you probably are not going to find grants for your business. State and federal agencies, as well as non-profit foundations, do make grants, and some of that money may even go to businesses. However, the vast majority of grant funding is to support projects that are expected to provide a benefit to the public. You may find some information on grants at www.grants.gov.