1. Stage 10 Arranging Financing

2. How will you finance your business?
Sources of Financing
How will you finance your business?
Personal savings
Credit from
suppliers
Loans and mortgages
from banks, credit
unions and others
Government
assistance programs
Love
money
Equity capital
from private
sources
Leasing
Friends and
neighbours
Local professionals
and angel
investors
Prepare loan or grant
request package
Employees
Venture
capitalists

3. Debt vs. Equity Advantages of Debt Financing
Useful for meeting a short-term deficit in cash flow
Do not have to give up or share control of your business
The term of the debt is generally limited
May be acquired from a variety of lenders
Information needed to obtain a loan is generally straightforward and part of your business plan
The interest paid is tax deductible

4. Debt vs. Equity (Continued)
Disadvantages of Debt Financing
Can be difficult to obtain for a risky project
Taking on too much debt can be a burden on your cash flows
If the funds aren’t used properly, it may be difficult for the business to repay the loan
If it is a “demand” loan, it can be called by the lender at any time
The lender may require you to provide a personal guarantee for the loan
Lenders will often insist on certain restrictions being put into place

5. Debt vs. Equity (Continued)
Advantages of Equity Financing
An appropriate investor can contribute expertise, contacts, and new business as well as money
Equity may be the only option to finance high-risk ventures
Equity can be used to fund larger projects with longer time frames

6. Debt vs. Equity (Continued)
Disadvantages of Equity Financing
You may have to give up some ownership and control of the business
There is always the danger of incompatibility and disagreement among the investors
It is much more difficult to terminate the relationship in disagreements occur

7. Major Sources of Funds Personal Funds “Love Money”
Banks and Similar Institutions
Operating Loans
Term Loans
Federal Government
Canada Small Business Financing Program
Industrial Research Assistance Program (IRAP)
Program for Export Market Development (PEMD)
Community Futures Development Corporations (CFDC)
Women’s Enterprise Initiative Loan Program
Aboriginal Business Canada – Youth Entrepreneurship
Business Development Bank of Canada (BDC)
Continued

8. Major Sources of Funds (Continued)
Provincial Government Programs
Venture Capital and “Angel” Investors
Other Sources of Financing
Personal Credit Cards
Canadian Youth Business Foundation
Suppliers’ Inventory Buying Plans
Leasing vs. Buying
Negotiated Leasehold Improvements
Advance Payment from Customers

9. Exit Strategies for Private Investors
Acquisition of the business by a third party
Sale of the investor’s interest to a third-party investor
Buy-back agreement
Management or employee buyout (ESOP)
Debt repayment
An initial public offering (IPO)

10. Getting the Best From Your Banker
Know what your banker is looking for
Don’t “tell” your banker, “show” him
Interview your banker
Passion makes perfect
Ask for more money than you need
Get your banker involved in your business
Increase your credit when you don’t need it
Make professional introductions
If all else fails, keep looking

11. Video Questions
What do young entrepreneurs like Chris and Larry risk when they put everything they have and can raise into a business that always seems to be on the verge of a meltdown?
How did Chris and Larry manage to solve their financial woes even though the solution was only temporary?
What are the risks of giving up control of your company even though it may be only partial control?
What are the advantages and disadvantages of a small company like Kraves going international in a large market like the US with many strong, established competitors?