SOURCES OF FINANCE

FOR NEW VENTURE

Planning for Capital Needs
• 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
• 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
Other Methods
• Factoring
• Factoring involves the selling of account receivables at
a lower price than the face value of the account.
• Leasing
• New start-ups can resort to leasing assets at the initial
stages to reduce the need for additional funding.
• Credit cards
• It is becoming a popular alternative as credit card
companies are usually not concerned about how you
spend your money, as long as the bills are settled.
Equity vs Debt Capital
• Equity capital:
represents the
personal investment of
the owner (s) of a
company
• Debt capital: the
financing that a
business owner has
borrowed and must
repay with interest
Sources of Equity Capital
• Personal savings
• Friends and family
members
• Angels
• Partners
• Corporate venture
capital
• Venture capital
companies
• Public stock sale
Angels
• Private investors, wealthy individuals,
entrepreneurs themselves, who provide money in
exchange for equity stakes
• Ranging from $10,000 to $2M
• Every year: 230,000 angels , $23 B, 50,000
companies
• Average: 10% of opportunities, 2 investments
per year, $80,000 in 3.5 firms
• Angel networks: 200
• Patient money
Venture Capital Companies

$3-10M
• Competent
management
• Competitive edge
• Growth industry
• Viable exit strategy
• Intangible factors
Public Stock Sale
Advantages
• Ability to raise large amounts of capital
• Improved corporate image
• Improved access to future financing
• Use of stock for acquisitions
• Listing on a stock exchange
Public Stock Sale
Disadvantages
• Dilution of ownership
• Loss of control
• Loss of privacy
• Reporting to SEC
• Filing expenses
• Accountability to shareholders
• Pressure for short-term performance
• Demands of time and timing
Debt Financing
• Commercial banks
• Non-banks
• Federally-sponsored
programs
• State and Local
Development
Programs
• Internal methods of
financing
Commercial Banks
• Short-term loans
Commercial loans
Lines of credit
Floor-planning
• Intermediate and long-
term loans
Installment loan
Term loan
Non-Bank Sources
• Asset-based lenders
• Vendor financing
• Equipment suppliers
• Commercial finance companies
• Savings and loan associations
• Stock brokerage houses
• Insurance companies
• Credit unions
• Bonds
• Private placements
• Small business investment companies
• Small business lending companies
Federally Sponsored Programs

• Economic Development Administration

• Department of Housing and Urban Development
• Department of Agriculture’s Rural Cooperative Service
• Small Business Innovation Research Program
• Small Business Technology Transfer Program
• Small Business Administration
Small Business Administration
• Low Doc Loan Program
• SBA Express Program
• 7A Loan Guaranty Program
• CAPLine Program
• Loans Involving International Trade
• Section 504 Certified Development Company
Program
• Microloan Program
• Prequalification Loan Program
• 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
• 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

• Leasing
• Credit cards