Financing Your Business. Entrepreneurial Resources Bootstrapping— –Operating as frugally as...
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![Page 1: Financing Your Business. Entrepreneurial Resources Bootstrapping— –Operating as frugally as possible and cutting all unnecessary expenses; “getting by”](https://reader036.fdocuments.in/reader036/viewer/2022081822/5697bf891a28abf838c8a2f1/html5/thumbnails/1.jpg)
Financing Your Business
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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
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Start-Up Money
• Personal resources– Savings– Credit cards– Family– Friends
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Financing the Start-Up
• Two types of financing for new capital– Equity sources– Debt sources
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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)
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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.
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Debt Sources
• Entrepreneur borrows money & repays it with interest—retains full ownership—loan becomes liability on balance sheet
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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)
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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
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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