1. Equity Versus Debt Debt Equity Credit Card ST Credit Facility Bank Loan Bond SharesVenture Capital Business Angels Creditors get: Periodic interest payments Money back at end of loan period Guaranteed repayment: -Company legally obligated to pay creditors before shareholders Shareholders get: Ownership in the company -A share of the upside Dividends, if paid A vote – potentially control of the company Lower risk / limited returnHigher risk / unlimited return

2. Equity Versus Debt (continued) Debt Equity Credit Card ST Credit Facility Bank Loan Bond SharesVenture Capital Business Angels Cost to Company: Interest payments reduce profitability Mandatory payments increase bankruptcy risk Must return cash at the end of the loan period* Cost to Company: Dilution of current shareholders Dividends, if paid (reduces cash available for investments) Potential loss of control * Note: equity is not repaid – it is permanent capital.

3. Questions you should ask: 1.How long do I need the funds? 2.How much do I need? 3.What are the specific circumstances of the company? 4.What are the costs of the financing? How Do You Choose a Financing Source?

4. 1.How long do I need the funds? 2.How much do I need? How Do You Choose a Financing Source? Short-term / Not so much Short Term Credit Facility Overdraft Facility Credit Card Trade Credit Long-term / Quite a bit Long-Term Bank Loan Equity / Venture Capital Etc. Debentures (bonds)

5. 3.What are the specific circumstances of the company? How Do You Choose a Financing Source? Big and established Bank loan, public equity, bonds Start-up company Personal funds, friends & family, credit card Risky but growing quickly Venture capital / business angel Generating lots of cash Retained earnings Has substantial fixed assets Sale leaseback, sale of assets Has receivables from customers Debt factoring Etc.

6. 4.What are the costs of the financing? How Do You Choose a Financing Source? Increased Risk Bankruptcy Loss of investor capital (reputation risk) Costs € / $ / ¥ Costs Interest payments Lease payments Dividends Dilution Splitting profits Loss of control Opportunity cost Other uses for retained profit Uses for assets sold