Financing Your Business Entrepreneurial Resources Bootstrapping Operating as

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