The first level of financing for new business is often among the so-called "3 F's". They are so-called friends, family and fools. If none of those people are available to you, then inquire among them if they know of an investor. You can also inquire at the banks where you were turned down. Insurance companies or stock brokers are another possible contact to the next level of investor, as discussed in the following paragraphs.

Equity financing for smaller transactions is usually secured from what are called 'angel investors'. Your transaction is probably one in which an angel investor could be interested because true venture capitalists probably wouldn't bother with transaction under $2M. The truth is that the most risk appears to be in projects in which Angel investors would be interested, and the higher risk demands a higher return. The following article suggests 10-20 times the original investment in five years. http://en.wikipedia.org/wiki/Angel_investor

The risk to the new business is that the angel investor will want so much return in order to invest that it could cripple the business efforts. Second, the angel investor will probably want ownership and/or control. That risk is that you could lose your business. Some angel investors may require monthly fees for services and/or the employment of associates, not as a personal favor, but as a way to ensure that skilled individuals are performing critical tasks that you may not have the experience to perform yourself. http://www.gaebler.com/Angel-Investor-Advantages.htm

Bank financing is a great way to get going, but normally you must have a successful business history before a bank will lend. If they do agree to lend, the bank will take a collateral position in all the assets of the business.

'Going Public' for equity financing has a long list of restrictions, is very expensive, plus requires impeccable accounting with five years of history. There is another option for issuing stock and it involves an unregistered issue following state laws. It might be a good interim step after the "3 F's", but each state's laws are different and a study would be needed.

One other method of financing commonly used but not mentioned is a partnership. This falls under the 3 F's group, but it can work. The rules are somewhat complicated, but with knowledge, it might be near the top of the list. A partnership in which you are the general (and managing) partner, and the others are limited partners (basically investors) has some merit. It also has risks of control, ownership, etc.

In summary, equity capital comes with strings which may be more than you want: giving up ownership, control, management and profits are all possible negative outcomes with equity. The good news is that there is no due date or interest payments, as in a loan.