Financing Your Business

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Financing Your Business
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Entrepreneurial Resources

• Bootstrapping
• Operating as frugally as possible and cutting all
  unnecessary expenses getting by
• How to use fewer resources
• Hire as few employees as possible (greatest
  single business expense usually)
• Lease where possibledont buy.
• Be creativelook for freebies, etc.
• Longer payment terms from suppliers
• Require customers to pay in advance
• Sell accounts receivable to factoragent who
  handles your transactions for a fee

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Start-Up Money

• Personal resources
• Savings
• Credit cards
• Family
• Friends

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Financing the Start-Up

• Two types of financing for new capital
• Equity sources
• Debt sources

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Equity Sources

• Trade cash for some portion of ownership (equity)
  of the business
• Equity is an ownership in the business. If they
  give you , you will have to give them part
  ownership in your company
• AKA risk capitalinvestor is putting money at
  risk (they can either lose it or gain from it)

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Sources of Equity Financing

• Personal savings (1 source)
• Friends family
• Private investors (angels)
• Partners (individuals, strategic alliances, etc.)
• Venture capitalists (professionals)better for
  growth funding rather than start-up
• State-sponsored venture capital funds used to
  promote entreprenurial growth in a state.

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Debt Sources

• Entrepreneur borrows money repays it with
  interestretains full ownershiploan becomes
  liability on balance sheet

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Sources of Debt Financing

• Banks
• Line of creditbank lends you a certain amount at
  a certain interestcompany can borrow against it
  as needs dictate
• Trade credit- one business gives another (often
  from suppliers)

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Debt sources contd

• MESBICsMinority Enterprise Small Business
  Investment Companiesdone by SBA for minorities,
  females, or disabled persons
• Commercial finance companiesmore expensive
  because they often have easier credit terms than
  banks

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Debt Sources contd

• Small Business AdministrationSBAthird party
  will guarantee the loan with a bank, but they DO
  NOT GIVE LOANS
• SBICsSmall Business Investment
  Companieslicensed through SBAprivate companies