This paper investigates the capital structure choices of firms in their first year of operations using data from the Kauffman Firm Survey (KFS). Contrary to common beliefs, firms in the data rely heavily on external debt sources, such as bank financing, rather than informal funding from friends and family. This pattern holds even after controlling for credit score variations due to demand-side factors. The reliance on external debt highlights the importance of well-functioning credit markets for the success of new businesses. The KFS tracks nearly 5,000 firms from 2004 through their first three years, providing detailed information on business characteristics, cash flow, and owner demographics. The data reveal that external debt financing, primarily through owner-backed bank loans and business credit cards, is the primary source of funding for new firms. The average amount of bank financing is seven times greater than the average amount of insider-financed debt, and three times as many firms rely on outside debt as do inside debt. To control for differences in credit availability, the study uses Dun & Bradstreet credit scores. By regressing credit scores on industry dummies and firm/owner characteristics, the study isolates supply-side variations in credit access. The results show that even after this adjustment, the capital structure choices of nascent firms remain largely unchanged. Firms with high unexplained credit scores have more financial capital but similar ratios of outside debt to total capital compared to firms with limited access to capital. The study also examines the pecking order of capital structure choices, finding that outside debt is the most common source of financing for new firms. While the standard pecking order model suggests that firms first use internal resources, then debt, then equity, the findings show that outside debt is more prevalent. The study also finds that high-tech firms rely more on outside equity, while low-credit score firms in the high-tech sector exhibit a pecking order similar to that of average nascent firms. The study underscores the importance of liquid credit markets for the formation and success of young firms. It highlights that new firms rely heavily on external debt financing, challenging the notion that startups primarily rely on informal funding from friends and family. The findings suggest that external debt is a critical factor in the capital structure decisions of new firms, emphasizing the role of well-functioning credit markets in supporting entrepreneurial activity.This paper investigates the capital structure choices of firms in their first year of operations using data from the Kauffman Firm Survey (KFS). Contrary to common beliefs, firms in the data rely heavily on external debt sources, such as bank financing, rather than informal funding from friends and family. This pattern holds even after controlling for credit score variations due to demand-side factors. The reliance on external debt highlights the importance of well-functioning credit markets for the success of new businesses. The KFS tracks nearly 5,000 firms from 2004 through their first three years, providing detailed information on business characteristics, cash flow, and owner demographics. The data reveal that external debt financing, primarily through owner-backed bank loans and business credit cards, is the primary source of funding for new firms. The average amount of bank financing is seven times greater than the average amount of insider-financed debt, and three times as many firms rely on outside debt as do inside debt. To control for differences in credit availability, the study uses Dun & Bradstreet credit scores. By regressing credit scores on industry dummies and firm/owner characteristics, the study isolates supply-side variations in credit access. The results show that even after this adjustment, the capital structure choices of nascent firms remain largely unchanged. Firms with high unexplained credit scores have more financial capital but similar ratios of outside debt to total capital compared to firms with limited access to capital. The study also examines the pecking order of capital structure choices, finding that outside debt is the most common source of financing for new firms. While the standard pecking order model suggests that firms first use internal resources, then debt, then equity, the findings show that outside debt is more prevalent. The study also finds that high-tech firms rely more on outside equity, while low-credit score firms in the high-tech sector exhibit a pecking order similar to that of average nascent firms. The study underscores the importance of liquid credit markets for the formation and success of young firms. It highlights that new firms rely heavily on external debt financing, challenging the notion that startups primarily rely on informal funding from friends and family. The findings suggest that external debt is a critical factor in the capital structure decisions of new firms, emphasizing the role of well-functioning credit markets in supporting entrepreneurial activity.