by Barbara Bedway

When starting a new business, the Golden Rule of Finance applies: those who have the gold, rule. The vast majority of businesses fail because of undercapitalization, says Stewart Welch III, a certified financial planner and author. But getting access to the capital you need is the biggest challenge a nascent business faces.

Only 50 percent of small businesses survive past their first year of operation (according to the Small Business Administration) so banks are notoriously reluctant to lend money for startups. Typically, you'll need to show at least two years of profitability to win a conventional bank business loan. In an ideal world, you'd postpone a launch until you save up the necessary capital, just as you would save for the down payment on a house, says Welch. The obvious advantage is that a business unencumbered by substantial debt can more easily ride out an economic slowdown or other setback.

But if using savings is not an option, there are other routes to that seed money. It really turns out that in many ways, the most available sources are the best: your credit cards, a home equity line, or borrowing from friends and relatives, points out Kate Lister, co-author with her husband Tom Harnish, of Finding Money: The Small Business Guide to Financing. Of course, that assumes you understand the risks and don't go overboard on the debt you're carrying. Be sure you have a plan in place to track and repay the debt. Let the funding begin.

• Microloan Programs - For many small businesses, even a loan from the Small Business Administration seems big. That's why the SBA started its Microloan Program. The Small Business Administration makes funds available to nonprofit intermediaries (such as the Women's Self-Employment Project in Illinois) which, in turn, make loans to eligible borrowers.

  The loans can be used for almost any purpose, but the majority go for equipment and short-term working capital. Most lenders will require some kind of collateral to back the loan, which makes them ideal for purchasing equipment - the equipment then becomes collateral for the loan. Loan amounts range from a few hundred dollars to a maximum of $35,000, with the average loan about $10,300. To find approved microloan participants in your area, visit the SBA's Web site.

• Advances From Suppliers - This arrangement works if you have a contract in hand for your goods or services. Lister cites the example of a children's clothes designer who received a large order from a department store. She didn't have enough money to buy the necessary fabric, so she negotiated a deal with a textile mill to provide her with the cloth in exchange for a percentage of the income from the sale of her clothes to the department store.

  You don't necessarily have to always find money per se, notes Lister. Even though the percentage cost was greater than the interest would have been on an equivalent loan, she didn't have to go through the paperwork and security and collateral requirements inherent in a loan.

• Credit Card Advances - Yes, it's tempting: there's no loan application or other red tape. And for a limited purpose - perhaps buying some basic home office equipment - using a credit card can make sense. But if you're relying mainly on credit cards and cash advances to capitalize your business, cautions Welch, ask yourself: If I don't have money for equipment, where's the money going to come from to service an 18% credit card debt Click here to find the best credit card rates.

• Home Equity Loans - Unlike credit card advances, HELs have appealing interest rates, but one grave drawback: if you default on payments, you could lose your home. However, Lister argues the risk is less than with a traditional business loan: With both credit cards and home equity lines, you're more protected by consumer protection laws, which involve a much longer process before a home can be seized. If something goes wrong in a business loan, banks come right after you. For more information on home equity loans, click here.

• Loans From Family or Friends - These must be professionally handled to succeed. When you use OPM (Other People's Money), there's an obligation to do things right, says Welch. The fastest way to make a friend an ex-friend is to get them involved in your business. You'll want to make sure a formal agreement is drawn up, with collateral specified and all the terms spelled out, including the interest rate, payment schedule, and what recourse the lender has if the loan is not paid.

  "Buyer's remorse happens all too often with that kind of lending, agrees Lister, so everything has to be very clear. Harnish points out that you're generally free to set what terms are acceptable to both parties: I once loaned $7,000 for a startup laundromat business, but wasn't convinced it was a sure thing, so I arranged to get weekly payments of interest. That way I could see they were going to make it work.