Stages of Business Financing (fill in the blank note)
First Stage (conceptual) Consists of entrepreneur’s personal funds At this stage, expenses include research and the development of a prototype Entrepreneurs obtain seed or shovel financing from personal resources or from friends and relatives.
Second stage (start- up stage) Entrepreneurs may have to seek outside funding for the first time. This is called start-up or first-stage financing
Third Stage (stabilization stage) At this stage the company is starting to break- even and beginning to realize the potential of the product Financing is required to secure/strengthen the company’s position in the marketplace.
Fourth stage (growth Stage) Financing occurs here because the company is ready to increase it’s capacity, introduce new products and particulate in foreign markets.
SOURCES OF FUNDING: Personal Friends and relatives (this type of funding is called love money) Angels (informal investors who are prepared to risk capital in junior companies) Potential customers Silent and active partners Government funding (the Federal Business Development Branch is a federal agency whose mandate is to act as a lender of last resort for Canadian business) Banks A line of credit is usually used to provide working capital day- to-day business operations A term loan is usually used by a new business to purchase equipment, machinery, or fixed assets. These assets are used as collateral for the loan
LENDING CRITERIA (the four C’s) Capacity examines the business’s ability to attain projected profits Collateral involves obtaining some kind of security against the loan (for example: assets of the business) Character “refers to such information as the reputation of the business and its owner, prior financial history and past credit ratings Conditions “examines any external factors such as the economy, marketplace, labour and competition. These factors could have an effect on a business’s financial success