Start Up Financing CHAPTER FIFTEEN

Warm Up Where can an entrepreneur get financing for his/her new venture? Will a bank lend to a new business with no sales? What is the drawback from borrowing from family/friends?

Capital Start ups need capital in order to get started. Capital is all assets including buildings, equipment, and funds needed to start a business.

Equity If I say Bob has equity in Genetech Corporation, I am stating that Bob has ownership in the corporation. Equity is ownership interest in the form of common stock in a company.

Venture Capital Many entrepreneurs turn to venture capital firms for financing. Banks generally will not lend to new start up companies due to the high level of risk. Venture Capital Firms provide financing to start-up companies and small businesses that are believed to have long term growth potential.

Debt Capital Capital that a business raises in the form of a loan to be repaid at a later date.

Equity Capital Capital that a business raises by selling a percentage of a business. On Shark Tank, the sharks give money (capital) in exchange for ownership in the company.

Line of Credit An arrangement between a bank and a company, that allows a company to borrow a certain amount of money at any time. The line of credit is an amount of credit extended to the company and behaves like a credit card.

Benefits of a Line of Credit Flexible payment terms Access to cash on demand Builds business credit Flexibility of usage Helps with cash flow

Trade Credit A supplier allows a company to buy now and pay later. Let’s say you own a gas station and you load up your 8,000 gallon tanks with gas from your supplier. If the supplier allows you to pay at a later date, this is an example of a trade credit.

Bootstrapping A situation where an entrepreneur starts a company with little capital. The individual will be as frugal as possible with expenses. Many entrepreneurs bootstrap their own ventures using their own capital. This requires them to watch every penny spent.

Kickstarter A crowdfunding platform where entrepreneurs can gather money from the public.

Lets take a look at some projects https://www.kickstarter.com/?ref=nav

Presales The sale of a good or service before its release date at a discounted rate.

Angel Investors An individual investor who provides capital to start- up businesses in exchange for debt or ownership equity.

The 3 C’s of Credit Character Capacity Capital These are 3 characteristics used by creditors to determine the creditworthiness of borrowers.

Character Will you repay the debt? Are you honest and reliable? Have you used credit before? Do you pay your bills on time? Do you have a good credit report? Do you have character references? How long have you lived at your present address?

Capital What if you do not repay the debt? Do you have any valuable assets? Do you own property? Do you have a savings account? Do you have investments?

Capacity Can you repay the debt? Do you earn enough income to support your credit use? Do you have a steady job? What is your salary? How many other debts do you have? What are your current living expenses? What are your current debts? How many dependents do you have?

Contingency Plan A plan designed to take action in the event of a future event or circumstance.