Sources of Financing:

Debt and Equity

If you dont know who the fool is on

the deal, its you!...Michael Wolff
 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: offered 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