Financing Your Business

Entrepreneurial Resources Bootstrapping— –Operating as frugally as possible and cutting all unnecessary expenses; “getting by” –How to use fewer resources: Hire as few employees as possible (greatest single business expense usually) Lease where possible—don’t buy. Be creative—look for freebies, etc. –Longer payment terms from suppliers –Require customers to pay in advance –Sell accounts receivable to factor—agent who handles your transactions for a fee

Start-Up Money Personal resources –Savings –Credit cards –Family –Friends

Financing the Start-Up Two types of financing for new capital –Equity sources –Debt sources

Equity Sources Trade cash for some portion of ownership (equity) of the business Equity is an ownership in the business. If they give you $$, you will have to give them part ownership in your company AKA risk capital—investor is putting money at risk (they can either lose it or gain from it)

Sources of Equity Financing –Personal savings (#1 source) –Friends & family –Private investors (angels) –Partners (individuals, strategic alliances, etc.) –Venture capitalists (professionals)—better for growth funding rather than start-up –State-sponsored venture capital funds – used to promote entreprenurial growth in a state.

Debt Sources Entrepreneur borrows money & repays it with interest—retains full ownership—loan becomes liability on balance sheet

Sources of Debt Financing Banks –Line of credit—bank lends you a certain amount at a certain interest—company can borrow against it as needs dictate Trade credit- one business gives another (often from suppliers)

Debt sources cont’d MESBICs—Minority Enterprise Small Business Investment Companies—done by SBA for minorities, females, or disabled persons Commercial finance companies—more expensive because they often have easier credit terms than banks

Debt Sources cont’d Small Business Administration—SBA— third party – will guarantee the loan with a bank, but they DO NOT GIVE LOANS SBICs—Small Business Investment Companies—licensed through SBA— private companies