Types of Financing Please get a worksheet, look over it, and be ready to take notes.

Personal Finances Entrepreneurs must realize that the personal financial contributions they make will come from their own pockets. This will require a thorough examination of personal and financial capabilities. Some entrepreneurs will rely heavily on their talents and knowledge. Others will require a sizable financial investment.

References People who act as references for the entrep. should be able to qualify what is represented in the resume/business plan. You should ask permission from people you use as references. A reference list should not include friends or relatives. The higher the authority, the more credible the reference.

Financial Contributions The primary financial contribution for a new business comes from the entrepreneur’s personal savings and investments. Although it is important to show confidence in an idea by investing personal resources, the entrep. should not risk all of their assets.

Net Worth of the Entrepreneur Calculating net worth is determined by subtracting personal liabilities from personal assets. This determines the entrep. net worth. Personal Assests – Personal Liabilities = net worth

Cash on Hand Refers to all money held in checking and savings accounts. If a family member gives the entrep. cash a personal note should be drawn up promising repayment. In order for the loans to be legally enforceable the entrep. must pay interest on the loans.

Financial Contributions Government Securities. These assets include savings bonds and treasury notes. Stocks. The completion for a sale of stock usually takes a few days. Banks will sometime hold the stock as collateral against a loan.

Financial Contributions Bonds- These assets are similar to government securities. An individual holding a bond can redeem the bond at any time for cash. If it is cashed before the maturity date, the bond may lose some of its value.

Profit Sharing and Pension Plans. Accumulated investments in profit sharing or pension plans may be used as an investment in a business. However money withdrawn before a specified date (retirement) is subject to penalties

Home Equity Equity refers to the appraised value of a home – the amount of money owed on the home. A lending institution may lend up to 80% of the equity of a home. Banks do this because the real estate market is basically stable and if the lender does not pay, the bank can force them to sell the property in order for the bank to recoup their losses.

Investments Many entrepr. decide to use their investments as collateral instead of cashing them in. Lending institutions will loan money against investments especially if the investment is growing at a rate equal to or higher than the interest of the loan. The lender will only allow the entrep.

Other Types of Financing Traditional Loans Mortgage Loans Line of Credit Installment Loans Accounts Receivable Inventory Financing Sales Contracts

In Summary Entrepreneurs normally use a combination of resources to obtain the capital needed to open their business. Institutions normally do not lend the total amount needed for an entrepreneur to run a business.

Be Careful… A reserve should be put in place until the business is stable The entrepreneur should be paid last in case of cash flow problems. Have other sources of income for yourself until the business becomes stable.

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