This paper examines the capital structure decisions of new firms using data from the Kauffman Firm Survey. Contrary to common beliefs, the study finds that these firms heavily rely on external debt sources, such as bank financing, rather than friends and family-based funding. This reliance on external debt is significant even when controlling for credit scores that reflect demand-side factors. The findings highlight the importance of well-functioning credit markets for the success of nascent businesses. The paper also develops an analytical framework to explore how firms choose between different funding sources and the role of asymmetric information. The results suggest that outside debt plays a crucial role in funding nascent firms, and that credit supply, not just demand, influences capital structure choices. The study concludes that liquid credit markets are essential for the formation and growth of young firms.This paper examines the capital structure decisions of new firms using data from the Kauffman Firm Survey. Contrary to common beliefs, the study finds that these firms heavily rely on external debt sources, such as bank financing, rather than friends and family-based funding. This reliance on external debt is significant even when controlling for credit scores that reflect demand-side factors. The findings highlight the importance of well-functioning credit markets for the success of nascent businesses. The paper also develops an analytical framework to explore how firms choose between different funding sources and the role of asymmetric information. The results suggest that outside debt plays a crucial role in funding nascent firms, and that credit supply, not just demand, influences capital structure choices. The study concludes that liquid credit markets are essential for the formation and growth of young firms.