How Do Start-Up Firms Finance Their Assets? Evidence from the Kauffman Firm Surveys Rebel Cole DePaul University Chicago, IL 60404 phone: (312) 362-6887 fax: (312) 362-6566 rcole@depaul.edu Tatyana Sokolyk Brock University St. Catharines, ON phone: (905) 688-5550 ext. 4781 fax: (905) 378-5723 tsokolyk@brocku.ca This version: May 27, 2013 Abstract: We use data from Kauffman Firm Surveys to analyze the capital-structure decisions of U.S. start- up firms. First, we analyze whether start-up capital structure explains whether or not a firm will remain in business after its first three years. We find that firm using debt in their capital structure, and, in particular, business debt, are significantly more likely to survive. Second, we analyze whether start-up capital structure explains how fast a firm will grow during its first three years. We find that firms using debt, and, in particular, business debt, grow faster. In other words, the capital structure decision of a start-up firm does, indeed, matter, in terms of both its survival and growth. Having established why capital structure matters for start-up firms, we then turn to how start-up firms finance their assets. We find that, at start-up, the majority (55%) of firms rely upon personal credit, and also a sizable fraction of firms use business credit (44%) and trade credit (24%), but that a significant portion (24%) use no credit. Third, we analyze what factors explain a start-up’s decision to use credi t; its decision as to what type of credit to use (business or personal credit); and, conditional upon using credit, how credit is allocated across business and personal credit. We find that both firm and owner characteristics explain the use of credit. Keywords: availability of credit, bank credit, capital structure, entrepreneurship, Kauffman, KFS, start-up, survival JEL Classifications: G21, G32, J71, L11, M13 We are grateful to the Kauffman Foundation for providing access to the NORC Enclave. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the Ewing Marion Kauffman Foundation.