1. Financing the Small Business Start-up
19.1

2. Most start-up funds come from an entrepreneur’s personal resources such as savings; however, there are common sources of funding.

3. Entrepreneurial Resources
Short-term needs are associated with activities that are not part of normal operations
Start-up cost
Seasonal Sales
Long-term needs relate to preparation for future growth
Purchase of capital assets, ex. equipment & facilities

4. Entrepreneurial Resources
Bootstrapping involves operating as frugally as possible and cutting all unnecessary expenses.
Accomplished by
Borrowing
Leasing
Partnering to acquire resources
Consists of
Hiring as few employees as possible
Leasing anything you can
Being creative
Request longer payment terms from suppliers
Require customers to pay in advance or pay half up front
Sell account receivables to a factor
Factor: an agent who handles an entrepreneur’s accts. Rec. for a fee

5. Entrepreneurial Resources
Start-up Money
Personal resources include
Friends
Family
Others who believe in the entrepreneur
Start saving now
Identify people and others resources you can approach in the future when needed

6. Financing the Start-up
Equity Capital is cash raised for a business in exchange for an ownership stake in the business.
Equity – an ownership in a business
Risk capital – money invested in companies where there is financial risk
Sources of Equity Capital
Personal Savings: entrepreneurs should contribute more than half of the start-up capital

7. Sources of Equity Capital
Friends & Family
Private Investors
Angel: private investor who funds start-up companies
Nonprofessional
Believe in the business concept and founding team
Found through networking
Partner

8. Sources of Equity Capital
Venture Capital is a source of equity financing for small businesses with exceptional growth potential and experienced senior management
Venture Capitalist are a pool of investors
Primary goal: to make money for investors
Rarely fund start-up ventures
Provide funding in high-tech, high growth areas
State-sponsored Venture Capital Funds
Encourages the creation of new businesses and jobs

9. Financing the Start-up
Debt Capital is money raised by taking out loans.
Allows owner to maintain full ownership of the business
Carried as a liability
Sources of Debt Capital
Banks
Operating capital, also known as working capital, is money used to support operations in the short term.

10. Sources of Debt Capital
Trade Credit a source of short-term financing provided by one business within another business’s industry or trade.
Minority Enterprise Development Programs
Support owners that are 51% ethnic minority, female, or disabled
Also assist w/securing contracts and find strategic parnters.

11. Sources of Debt Capital
Commercial Finance Companies
SBA (Small Business Admin.)Loan
Guarantee repayment to lender of up to a max of 90% of the loan should the business fail.
Lend to qualified veterans & people with disabilities
SBICs (Small Business Investment Companies)
Privately managed venture capital companies
Licensed by the SBA to provide equity & debt financing to young businesses
Invest in start-up ventures about twice as often as venture capitalists

12. Financial Planning for Your Business
Finding the right financial resources at the right time in the right amount
Provides a better chance of securing the money needed
Starts with identifying your business’s stages of growth
Identify critical milestones that require resources
Identify business advisers that can introduce you to funding sources
Hiring the best management expertise