Finding Sources of Capital: Debt and Equity If you don’t know who the fool is on the deal, it’s you!...Michael Wolff

Planning for Capital Needs Capital: any form of wealth employed to produce more wealth Capital: any form of wealth employed to produce more wealth Fixed capital: to purchase a company’s permanent or fixed assets such as land, buildings, computers, and equipment Fixed capital: to purchase a company’s permanent or fixed assets such as land, buildings, computers, and equipment Working capital: to support a business’s short-term operations Working capital: to support a business’s short-term operations Growth capital: to finance a company’s growth or its expansion in a new direction Growth capital: to finance a company’s 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 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 Debt capital: the financing that a small business owner has borrowed and must repay with interest

Sources of Equity Capital Personal savings Personal savings Friends and family members Friends and family members Angels Angels Partners Partners Small Business Investment Companies (SBICs) Small Business Investment Companies (SBICs) Venture capital companies Venture capital companies Minority Financing Sources Minority Financing Sources Banks and Credit Unions/SBA Banks and Credit Unions/SBA

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

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

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

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

Non-Bank Sources Minority Enterprise Small Business Investment Companies (MESBICs) Minority Enterprise Small Business Investment Companies (MESBICs) Dollar Diva (Teen women) Dollar Diva (Teen women) Ernst & Young’s Entrepreneur of the Year Program Ernst & Young’s Entrepreneur of the Year Program NFIB NFIB NFTE NFTE SBA SBA Youth in Action Awards Youth in Action Awards

Federally Sponsored Programs Economic Development Administration Economic Development Administration Department of Housing and Urban Development Department of Housing and Urban Development Department of Agriculture’s Rural Cooperative Service Department of Agriculture’s Rural Cooperative Service Small Business Innovation Research Program Small Business Innovation Research Program Small Business Technology Transfer Program Small Business Technology Transfer Program Small Business Administration Small Business Administration

Small Business Administration Low Doc Loan Program Low Doc Loan Program SBA Express Program SBA Express Program 7A Loan Guaranty Program 7A Loan Guaranty Program CAPLine Program CAPLine Program Loans Involving International Trade Loans Involving International Trade Section 504 Certified Development Company Program Section 504 Certified Development Company Program Microloan Program Microloan Program Prequalification Loan Program Prequalification Loan Program Disaster Loans 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 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 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 Factoring accounts receivable Leasing Leasing Credit cards Credit cards