One of the biggest (although not the biggest) challenges to running a small business is the lack of capital. Let's start with the easiest source of capital - you.

Self-Financing
Most small business owners utilize their personal savings, retirement plans, home equity loans (or second mortgages), and credit cards. You should be cautious of withdrawing retirement plan contributions, since usually you will owe a 10% excise penalty for premature withdrawal as well as income taxes. Personal savings and borrowing power should generally be used only for financing short term working capital needs (i.e. to buy materials for a big job or when buying for an upcoming seasonal increase in sales). Of course using personal savings and loans can also be helpful when acquiring a business (although you should try to get the seller to finance as much of the sale as possible by taking back a note).

Your business can also be a source of financing. When cash is tight, review your receivables and payables aging. Can you require more of a down-payment before taking on large or custom orders? Are you dealing with slow paying customers who never quite catch up? Then perhaps you need to wait until a crucial point where your customer really needs your product or service (such as in the middle of a job) and then politely demand that they catch up and provide a payment towards the current job in progress.

When you need capital to purchase equipment, remodel a facility or fund a new product line or area, friends and relatives can be a good source of capital. You must offer a reasonable rate of return - something several percentage points above what the bank is offering. Sign a note, and offer terms between 2 to 5 years. If you pin down the terms in writing, there won't be problems later about unreasonable interest expectations, employment or equity expected, or having friends demand the money back at inconvenient times. You should shy away from accepting funds from friends or relatives who are not interested in an exit strategy from the outset, or who also want you to provide a job for them or one of their relatives.

You may also be able to generate working capital by stretching cash flow. You can look at taking advantage of any early payment discounts offered by your vendors. If a vendor does not offer discounts, you can usually hold payments for 30 days. If you couple a down-payment and/or early pay discount to your customers with a 30 day delay in paying your accounts payable, it may be possible to smooth out your cash flow. Also, holding inventory down (or taking advantage of consignment and/or floor financing plans) can sometimes assist in minimizing the cash out of your pocket while still providing merchandise to sell. Be careful to ask about the terms on consignment and floor financing plans. Some manufacturers require that you take items you cannot move easily or that you take excessive volumes of merchandise as a condition for participating in their plans. Often such arrangements are harmful to small businesses. The basic idea in stretching cash flow is to accelerate receivables and delay payables (a technique called Treasury Management), plus getting more cash as down payment while arranging for inventory to arrive just in time as it is needed for shipping (the main thrust of Reengineering). These techniques have been practiced by larger companies for almost 20 years now (usually against smaller businesses).