To raise money for your new business, you have two options: borrow money or sell part of your venture to an equity investor. This assumes, of course, that both options are open to you. In fact, you might not find a lender willing to lend you money or you might have a hard time convincing an investor to put money into your business. But you should nevertheless understand the trade-offs that come with choosing one over the other.
Here's a comparison of the pros and cons of each method of raising money.
Loans are often better for businesses whose cash flow allows for realistic repayment schedules and can't require a pledge of anyone's personal assets.
For more on business loans, see The Lowdown on Business Loans.
Equity investments are often the best way to finance start-up ventures because of the flexible repayment schedules.
For more on equity investments, see Raising Money Through Equity Investments.
If you don't already know an accountant specializing in small business affairs, you may want to find one to help you make the decision. Your personal tax situation, the tax situation of the people who may invest, and the tax status of the type of business you plan to open are all likely to influence your choice.
To learn more about managing your business finances, and everything else you need to know about starting and running a business, get The Small Business Start-Up Kit: A Step-by-Step Legal Guide, by Peri H. Pakroo (Nolo).