4.04e Implement Financial Skills To Obtain Business Credit And To Control Its Use Explain sources of financial assistance

Sources of Small Business Financing 0 Small businesses can get money through "equity financing" or "debt financing."

Equity Sources 0 Equity financing means that you sell stock in your company to a buyer, who then has an ownership interest in your company.

Debt Sources 0 Debt financing means a loan -- you owe the person who holds the debt (usually a promissory note) the amount borrowed.

Identify Sources Of Credit For Businesses 0 Small businesses can get money through "equity financing" or "debt financing." Equity financing means that you sell stock in your company to a buyer, who then has an ownership interest in your company. Debt financing means a loan -- you owe the person who holds the debt (usually a promissory note) the amount borrowed. Here are the most common sources of equity and debt financing for small businesses. - See more at:

Identify Sources Of Credit For Businesses 0 You -Contributing your own money to your business is the easiest way to finance it. 0 You can tap into your savings, use a home-equity line of credit, or sell or borrow against a personal asset -- including stocks, bonds, mutual funds, or real estate. 0 You can contribute money as equity or make loans to your company. 0 Family and Friends- Mom, dad, relatives, and friends may have access to more cash than you do. 0 They may be willing to lend you money, or they may be willing to take an equity stake in your company. 0 Small Business Administration- The Small Business Administration (SBA) offers a number of loan programs to small businesses. 0 The 7(a) Loan Guaranty Program is one of its primary programs. Through this program, the SBA provides loans to small businesses that are not able to obtain financing on reasonable terms through normal lending channels. 0 You can apply for these loans through your local participating lender (usually a bank).

Identify Sources Of Credit For Businesses 0 Banks -Banks make a lot of loans to small businesses. However, they are usually the hardest place for the start-up business to find money, because banks like to see that a company has a history of making money. 0 The bank wants to be reasonably sure that your company will be able to repay the loan. 0 If you have a good business plan and have personal assets that you can offer as collateral (or if you have a guarantor or cosigner who is satisfactory to the lender), you may be able to qualify for a bank loan even if your business is a start-up business. 0 Credit Cards-If you have a credit card, you have a built in line of credit. 0 Although credit cards are one of the most costly ways to finance your company, they are routinely used as a source of funds for start-up businesses. 0 Leasing Companies-Leasing companies are a way to finance computers, office equipment, phone systems, vehicles, and other equipment. 0 Leasing can lower your start-up costs because you won't have a large initial outlay of cash for the equipment.

Identify Sources Of Credit For Businesses 0 Customers.-If you have existing customers, they may be willing to pay you in advance for your products. 0 This allows you to use their money to purchase products or inventory prior to sale. 0 Trade Credit- Vendors and suppliers are often willing to sell to you on credit. 0 This is a great source of financing for both start-up companies and growing businesses. 0 Small Business InvestmentCenters-Small Business Investment Centers (SBICs) are licensed and regulated by the SBA. 0 SBICs are privately owned and managed investment firms that provide venture capital and start-up financing to small businesses.

Identify Sources Of Credit For Businesses 0 Venture Capital Firms- Venture capitalists provide funds to companies that they believe have exceptional growth potential. 0 Very few small businesses are able to obtain financing through venture capital 0 Investment Banking Firms.- Investment bankers "take companies public." That means that the investment banker offers stock (an ownership interest) in your company to the public. 0 This option is generally only available to small businesses that have very strong growth history and very strong growth potential. 0 Private Placement.-A private placement is an offer of stock 0 (the stock gives the buyer an ownership interest in your company), 0 or debt (you owe the holder of the debt instrument, much like a loan) to wealthy individuals or venture capitalists without going public.

Advantages Of Obtaining Credit From Each Source 0 Personal Savings And Assets - Your personal savings and other assets make a great source of capital. Because you already have them, acquisition costs are minimal, and you won't be paying interest on a bank loan or sharing returns with investors. 0 Investors - Corraling a group of investors can help you raise startup or expansion capital for your business without placing all of the risk of loss on you alone. 0 These investors may be active partners in the business, or they may be silent investors who simply provide capital and wait for their returns.

Advantages Of Obtaining Credit From Each Source 0 Bank Loans - Private banks can be another good source of funding. 0 For small ventures, you may be able to secure a personal loan or line of credit; for larger operations, you may have to leverage assets -- real estate, large equipment or inventory -- by using them as collateral to secure the loan. 0 The advantage to borrowing the money is that it enables you to keep your cash on hand to use as operating capital or for personal survival during a down period in your business. 0 Additionally, if business goes bad, you may be able to protect your most important personal assets by declaring bankruptcy. 0 Government Grants And Loans - The U.S. Small Business Administration offers several loan and grant programs to help startup companies and assist existing ventures in expansion; your home state may have similar programs on a smaller scale. 0 Grants are basically free money, and government-guaranteed loans come with interest rates that are typically far below what you can get on your own..

Disadvantages Of Obtaining Credit From Each Source. 0 Personal Savings and Assets -The drawbacks, of course, are that if you plow your personal savings into a business venture, you could lose it all. 0 Some assets, such as retirement accounts, are safe from creditors and bankruptcy courts; placing such assets at risk may not be good for you, especially if you're approaching retirement age and are running out of time to rebuild depleted accounts. 0 Investors - The disadvantage to bringing in investors is that you do give up a certain element of control over the company. Even if you retain a majority interest, you'll need to keep your investors happy. 0 Additionally, if you share the risk with others, you'll also have to share the profits.

Disadvantages Of Obtaining Credit From Each Source. 0 Bank Loans - The disadvantages are that you'll have to pay interest on the loan. 0 Furthermore, your payments will be due on time regardless of whether business is bad or good. 0 Government Grants And Loans - Unfortunately, they come with a lot of red tape and may not be available for every type of business. 0 Budget issues from year to year may affect the availability of funds. 0 Finally, a government-guaranteed loan is still a loan; you'll have to pay it back regardless of whether business is good