If you’ve been following my blog since it started, you may recall my short article on why the economic recession is good for startups. Essentially, technology acts as a catalyst to economic recovery which creates opportunity for startups.

Recently, I went over the TED spread. Banks may be unthawing the credit freeze between themselves, but they aren’t necessarily being more lax with consumer credit. You could say they’ve learned their lesson.

So, if you are looking to start a new business, where can you look for funding (once you’ve created a strong business plan)?

Friends and Family

Before you start hitting the ol’ family up, try and fund the venture out of your own savings as best as you can. But, it is unrealistic to expect your savings to cover 100%.

So the next best bet is what they call “friendly capital.”

The Good? Your family & friends will be more understanding and have a personal stake in your success. Because of that they may offer the benefit of emotional support and perhaps more importantly very low interest rates, if any interest is charged at all.

The Bad? You may lose your relationship if you lose the money. There’s lots of risk there.

The Answer? It may be family, but make it legal. Have legal counsel put the details in writing. You can always use a service like VirginMoney.com or Lending Club to make it more official, too.

Home Equity

Qualifying for one of these is a lot harder now than it was a few years ago. If you were previously qualified, there’s a chance the bank has offered you money to close your HELOC. These present a risk to the bank, especially with the way they were qualifying people for them over the past decade.

The Good? If you do qualify for a HELOC, rates average around 5.25% or so, which makes it a very cheap way to get funding. Check Bankrate.com to track the best rates on a day to day basis. Another huge advantage is that the interest you pay is tax deductible, just like with your normal mortgage payment.

The Bad? If you are one of the unfortunate souls who is watching their house values plummet, a HELOC will find you eating away at your house’s remaining equity. If you take out enough equity and the housing market continues to fall where you live, are you comfortable risking going underwater on your house?

The Answer? A HELOC may be incredibly attractive, but take a step back and evaluate your local housing market. Would you put yourself at risk by taking a HELOC? These can be very advantageous or very dangerous, so consider this option carefully.

Bank Loans

When looking for a bank loan, you should try local banks, credit unions, and national banks. Why? Local banks have typically been positioned better to weather the economic crisis. The larger national banks that haven’t been battered are more able to offer larger loans.

The Good? Depending on what you need, different kinds of banks are available to provide you a loan. If you don’t qualify for a normal loan, you can try and get a SBA-guaranteed loan. The rates are usually higher, but the repayment terms are longer and the standards looser.

The Bad? Banks have been tightening their credit to consumers and businesses with the economic crisis. They have loosened their interbank lending, but are still waiting to thaw out their consumer credit. It may be difficult to get a loan.

The Answer? If the first two options are unavailable, take a swing at a bank loan. You may not get it, but hey, you may get it. So give it a shot!

Peer-to-Peer Lending

A new-age way to raise money is to ask your peers. There is something to be said about helping someone just like you make their dreams come true. Raising $25,000 has never been easier with sites like Lending Club, Prosper.com, and Loanio.com.

The Good? Anyone (who meets the requirements) can ask for an unsecured loan to pay off their debt, whether it’s student loans, auto loans, or a mortgage. If you have great credit, you can get a decent rate for personal loans.

The Bad? Some of the common stipulations are credit scores above 660 or so, a debt utilization ratio below 25% (without counting mortgage), and a record of no delinquencies for the past year or two. Of the 15% of Lending Club members who receive a loan, the average rate is 11.2%.

The Answer? If you can’t fund your businesses launch with the previous solutions, try your hand at peer-to-peer lending. You don’t have to accept the loan if people aren’t offering interest rates that you are comfortable with.

Credit Cards

Everyone knows what credit cards are… they don’t need much introduction. Most people have at least a few and hold at least a few thousand in credit card debt.

The Good? Credit card debt is more easily accessible than the aforementioned options. Because of the competition, you can usually find a card with good rewards and/or a low (introductory) interest rate.

The Bad? Average rates on credit cards near 12%. This makes this a pretty expensive option, especially if you miss a payment and go to the universal default rates of 20%+.

The Answer? Only use this option if you are in dire need and know your business will be successful (as well as you could possibly know).

Now, Start Up!

Hopefully, if you are trying to start a business, this will help you start a business. These are the 5 most common ways to find funding. If you have any other ideas, please chime in!