Sources of Financing:

Debt and Equity

If you dont know who the fool is
on the deal, its you!...Michael
Wolf

Planning for Capital Needs

Capital: any form of wealth employed to

produce more wealth
Fixed capital: to purchase a companys
permanent or fixed assets such as land,
buildings, computers, and equipment
Working capital: to support a businesss
short-term operations
Growth capital: to finance a companys
growth or its expansion in a new direction

Equity vs Debt Capital

Equity capital:
represents the
personal investment
of the owner (s) of a
company
Debt capital: the
financing that a
small business
owner has borrowed
and must repay
with interest

Sources of Equity Capital

Personal savings
Friends and family
members
Angels
Partners
Corporate venture
capital
Venture capital
companies
Public stock sale

Angels

Private investors, wealthy individuals,

entrepreneurs themselves, who provide
money in exchange for equity stakes
Ranging from $10,000 to $2M
Every year: 230,000 angels , $23 B,
50,000 companies
Average: 10% of opportunities, 2
investments per year, $80,000 in 3.5 firms
Angel networks: 200
Patient money

Venture Capital Companies

$3-10M
Competent
management
Competitive edge
Growth industry
Viable exit strategy
Intangible factors

Public Stock Sale

Advantages
Ability to raise large amounts of
capital
Improved corporate image
Improved access to future financing
Use of stock for acquisitions
Listing on a stock exchange

Public Stock Sale

Disadvantages
Dilution of ownership
Loss of control
Loss of privacy
Reporting to SEC
Filing expenses
Accountability to shareholders
Pressure for short-term performance
Demands of time and timing

Debt Financing

Commercial banks
Non-banks
Federally-sponsored
programs
State and Local
Development
Programs
Internal methods of
financing

Commercial Banks

Short-term loans
Commercial loans
Lines of credit
Floor-planning
Intermediate and
long-term loans
Installment loan
Term loan

Non-Bank Sources

Asset-based lenders
Vendor financing
Equipment suppliers
Commercial finance companies
Savings and loan associations
Stock brokerage houses
Insurance companies
Credit unions
Bonds
Private placements
Small business investment companies
Small business lending companies

Federally Sponsored
Programs

Economic Development Administration

Department of Housing and Urban Development
Department of Agricultures Rural Cooperative
Service
Small Business Innovation Research Program
Small Business Technology Transfer Program
Small Business Administration

Small Business
Administration

Low Doc Loan Program

SBA Express Program
7A Loan Guaranty Program
CAPLine Program
Loans Involving International Trade
Section 504 Certified Development
Company Program
Microloan Program
Prequalification Loan Program
Disaster Loans

State and Local Loan

Development Programs

Capital access programs: encourages

lending institutions to make loans to
businesses that do not qualify for
traditional financing because of higher
risk
Revolving loan funds: ofered by
communities that combine private and
public funds to make loans to small
businesses, often at below-market
interest rates

Internal Methods

Factoring accounts
receivable
Leasing
Credit cards