Study: One-Third of Small Business are Started for Less than $5,000

When it comes to starting a new business, one of the largest and most daunting aspects is raising enough capital. However, while having capital is certainly essential for any small business, a new study finds that it might not take as much upfront money to get off the ground as one might think. According to data from the small business lender Kabbage, one-third of successful businesses are launched for less than $5,000.

Kabbage’s report comes via a survey of 600 “thriving” small businesses in the United States. This polling discovered that not only were the aforementioned one-third of these businesses started for under $5,000 but another 58% were launched for less than $25,000.

Of course just because the entrepreneurs sampled managed to get their businesses up and running with relatively little cash doesn’t mean it was easy. In fact Kabbage found that 65% of respondents weren’t sure they had enough money when starting their businesses. Moreover a whopping 93% of those surveyed said they calculate a run rate for their business that was less than 18 months with 25% expecting run rates of just six months. For the record, 36% admit they didn’t calculate run rates at all.

For their study, Kabbage also looked at what types of small businesses required the most capital to start. Not surprisingly restaurants were among the most expensive, with 38% of them costing more than $100,000 to launch. Additionally 23% of medical offices and 19% of manufacturing companies were also found to have a six-figure price tags.  On the other side of things the survey found that 45% of accounting firms, 44% of online retail businesses, and 39% of construction and landscaping companies would be started for less than $5,000.

Discussing the company’s goals in conducting their survey, Kabbage’s head of Lending Rob Rosenblatt said, “We sought to understand the cash flow concerns successful business owners faced when starting their company.” He went on to explain, “The data shows cash flow and run rate uncertainties are all too common among small business owners. While it may seem daunting, it’s their tenacity and self-confidence to succeed that champions their doubts and compels them to start the amazing journey of entrepreneurship.”

Despite Kabbage’s small sample size for this particular survey, it is encouraging for would-be entrepreneurs to realize that starting a small business might not require as much capital as assumed. Then again the type of business will play a major factor in startups costs and run rate calculations. Ultimately it’s up to each individual business owner to determine how much capital they need to get their idea off the ground and give them a decent shot at being successful.

Starting with a skill based business certainly will cost less than having restaurant or manufacturing but your location and your passion plays a big role in its success.

This shows that starting capital need not a really huge amount when trying to start your own business, sometimes, it just needs a little creativity and skill.

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Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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