1. Sources of Financing: Debt and Equity If you don’t know who the fool is on the deal, it’s you!...Michael Wolff

2. Planning for Capital Needs Capital: any form of wealth employed to produce more wealth 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 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 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 Growth capital: to finance a company’s growth or its expansion in a new direction

3. Equity vs Debt Capital Equity capital: represents the personal investment of the owner (s) of a company 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 Debt capital: the financing that a small business owner has borrowed and must repay with interest

4. Sources of Equity Capital Personal savings Personal savings Friends and family members Friends and family members Angels Angels Partners Partners Corporate venture capital Corporate venture capital Venture capital companies Venture capital companies Public stock sale Public stock sale

5. Angels Private investors, wealthy individuals, entrepreneurs themselves, who provide money in exchange for equity stakes Private investors, wealthy individuals, entrepreneurs themselves, who provide money in exchange for equity stakes Ranging from $10,000 to $2M Ranging from $10,000 to $2M Every year: 230,000 angels, $23 B, 50,000 companies Every year: 230,000 angels, $23 B, 50,000 companies Average: 10% of opportunities, 2 investments per year, $80,000 in 3.5 firms Average: 10% of opportunities, 2 investments per year, $80,000 in 3.5 firms Angel networks: 200 Angel networks: 200 Patient money Patient money

6. Venture Capital Companies $3-10M Competent management Competent management Competitive edge Competitive edge Growth industry Growth industry Viable exit strategy Viable exit strategy Intangible factors Intangible factors

7. Public Stock Sale Advantages Ability to raise large amounts of capital Ability to raise large amounts of capital Improved corporate image Improved corporate image Improved access to future financing Improved access to future financing Use of stock for acquisitions Use of stock for acquisitions Listing on a stock exchange Listing on a stock exchange

8. Public Stock Sale Disadvantages Dilution of ownership Dilution of ownership Loss of control Loss of control Loss of privacy Loss of privacy Reporting to SEC Reporting to SEC Filing expenses Filing expenses Accountability to shareholders Accountability to shareholders Pressure for short-term performance Pressure for short-term performance Demands of time and timing Demands of time and timing

9. Debt Financing Commercial banks Commercial banks Non-banks Non-banks Federally-sponsored programs Federally-sponsored programs State and Local Development Programs State and Local Development Programs Internal methods of financing Internal methods of financing

10. Commercial Banks Short-term loans Short-term loans Commercial loans Commercial loans Lines of credit Lines of credit Floor-planning Floor-planning Intermediate and long-term loans Intermediate and long-term loans Installment loan Installment loan Term loan Term loan

11. Non-Bank Sources Asset-based lenders Asset-based lenders Vendor financing Vendor financing Equipment suppliers Equipment suppliers Commercial finance companies Commercial finance companies Savings and loan associations Savings and loan associations Stock brokerage houses Stock brokerage houses Insurance companies Insurance companies Credit unions Credit unions Bonds Bonds Private placements Private placements Small business investment companies Small business investment companies Small business lending companies Small business lending companies

12. Federally Sponsored Programs Economic Development Administration Economic Development Administration Department of Housing and Urban Development Department of Housing and Urban Development Department of Agriculture’s Rural Cooperative Service Department of Agriculture’s Rural Cooperative Service Small Business Innovation Research Program Small Business Innovation Research Program Small Business Technology Transfer Program Small Business Technology Transfer Program Small Business Administration Small Business Administration

13. Small Business Administration Low Doc Loan Program Low Doc Loan Program SBA Express Program SBA Express Program 7A Loan Guaranty Program 7A Loan Guaranty Program CAPLine Program CAPLine Program Loans Involving International Trade Loans Involving International Trade Section 504 Certified Development Company Program Section 504 Certified Development Company Program Microloan Program Microloan Program Prequalification Loan Program Prequalification Loan Program Disaster Loans Disaster Loans

14. State and Local Loan Development Programs Capital access programs: encourages lending institutions to make loans to businesses that do not qualify for traditional financing because of higher risk 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 Revolving loan funds: offered by communities that combine private and public funds to make loans to small businesses, often at below-market interest rates

15. Internal Methods Factoring accounts receivable Factoring accounts receivable Leasing Leasing Credit cards Credit cards