Download Sources of Financing: Debt and Equity

Sources of Financing:
Debt and Equity
If you don’t know who the fool is on
the deal, it’s you!...Michael Wolff
Planning for Capital Needs
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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
Equity vs Debt Capital
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Equity capital:
represents the
personal investment
of the owner (s) of a
company
Debt capital: the
financing that a small
business owner has
borrowed and must
repay with interest
Sources of Equity Capital
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Personal savings
Friends and family
members
Angels
Partners
Corporate venture
capital
Venture capital
companies
Public stock sale
Angels
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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
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Commercial banks
Non-banks
Federally-sponsored
programs
State and Local
Development
Programs
Internal methods of
financing
Commercial Banks
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Short-term loans
Commercial loans
Lines of credit
Floor-planning
Intermediate and
long-term loans
Installment loan
Term loan
Non-Bank Sources
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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
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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
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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
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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
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Factoring accounts receivable
Leasing
Credit cards