1. Objective: Students will compare and contrast the advantages and disadvantages of debt and equity financing.

2.  You will read the article Small Business Financing: Debt vs. Equity  Use the article to help you complete assignments 6.3 & 6.4 on Debt and Equity Financing

3. Two other forms of financing: – Bootstrap Financing = is to build a business out of little or nothing with no or minimal outside capital. – Venture Capital = Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.

4. Personal Equity/Family Financing – Using your personal funds to help build/develop the business. Factoring- Using your accounts receivable to generate cashflow by selling them to a "Factor," at a discount, in exchange for cash. Trade Credit- If your business can find a vedor or supplier to extend trade credit and allow you to order goods on net 30, 60, or 90 day terms, that is another form of bootstrap financing you could use. If your business is able to sell the goods before the payment is due, then you just generated cashflow without using any of your companies own cash. Customers- Your business can use a letter of credit from your customer to purchase materials without using any company resources. Just like when a contractor has their customer pay up front and then uses that money to buy the materials they need to complete the job. Real Estate- Leasing, refinancing, and borrowing against equity is a great way for a company to generate capital by using its own assets. Leasing- Free up cash by leasing equipment rather than purchasing outright.

5. To start a new startup company or to bring a new product to the market, the business may need to attract financial funding. There are several categories of financing possibilities. Some businesses have access to rare funding resources called Angel investors. These are private investors who are using their own capital to finance a ventures’ need. – Angel-funded startup companies are less likely to fail than companies that rely on other forms of initial financing. Why do you think this would be? There are also venture capitalist firms (VC-firms) who are specialized in financing new ventures against a lucrative return. – When approaching a VC-firm, the venture is going to do more than negotiating about the financial terms. Apart from the financial resources these firms are offering; the VC-firm also provides potential expertise the venture is lacking, such as legal or marketing knowledge. (Think of shows like Shark Tank)

6. Assignment 6.3Assignment 6.4  Create a short answer essay identifying:  What is debt financing?  Briefly summarize two forms.  State the pro’s and con’s to financing a business by debt.  Create a short answer essay identifying:  What is equity financing?  Briefly summarize two forms.  State the pro’s and con’s to financing a business by equity.