Institutional Sources of Finance

Those seeking money to start businesses may gather funds through institutional financing. Institutional financing is not available from individual investors such as relatives and friends. Instead, institutional financing is provided through institutions. While many entrepreneurs are unable to obtain bank loans due to poor credit scores or nontraditional employment, options for institutional financing including venture capitalists, credit unions and insurance companies.

Venture Capitalists

Early-stage experts, former chief executive officers and seasoned veterans find second careers as venture capitalists--speculators who invest in innovative companies and ideas. They invest money, expertise and industry knowledge into start-ups. In doing so, they collaborate with government, nonprofit organizations and businesses to create new jobs, technologies and companies in a selected region or field. Venture capital firms may partake in additional programs, including business assistance, labs and internships, and may volunteer their services to assist early-stage companies in identifying business needs, maximizing prospects and marketing. Business students and entrepreneurs attend lab programs, which offer participants office space, user feedback, and strategies to create a business in six months or less. Undergraduate students who demonstrate high business potential may also participate in start-up internships.

Credit Unions

Credit unions are cooperative financial institutions that is controlled and operated by its members. The mission of credit unions is to promote thrift while providing financial services at affordable rates. These nonprofit institutions issue loans for mortgages, education, vehicles and personal needs. Lower interest rates and reduced fees for members result in fewer penalties for late payments and overdrafting.

Insurance Companies

Another institutional source of finance is life insurance policies. The death benefit, which provides families with cash upon the issuer's death, is a flexible financial product, as well. The cash accumulated in policies is tax-deferred, meaning that it accrues interest without being taxed until the aid is withdrawn. Policy holders "may borrow up to the amount of the accumulated cash value through one or more loans," according to New York Life Insurance. The loan, consequently, accrues interest and decreases the death benefit. Loan recipients must pay the loan back in order for their beneficiaries to receive the insurance policy amount in full.