debt financing - borrowed money secured in some fashion with some type of asset for collateral; or
equity financing - contributed capital (usually hard dollars).

 

Many businesses use a combination of both debt and equity financing.

Equity Types and Sources:

PERSONAL:Savings, sell personal or business assets, credit cards, investments from family, friends and/or acquaintances.

 

ANGELS: Individual private investors may invest with either debt or equity or combinations.

 

VENTURE CAPITAL: For a hypergrowth company in an industry that appeals to the investors (often a high-tech business). The investors' primary objective is to make a sizeable return on their investment, and they take an active role alongside management.

 

GOVERNMENT SOURCES:
Small Business Investment Companies: provide venture capital to small independent businesses.
Small Business Innovation Research: provide funds for research and development efforts of a high risk nature that may have excellent commercial potential.
Incubators: physical facilities designed to foster the growth of small companies.
Industrial Development Bonds and Local Development Companies.
Enterprise Zones: cities or portions therein targeted for economic growth-have significant tax incentives and marketing assistance programs.

 

>GRANTS:Grants are available on a limited basis for specific industries, non-profits and high-tech or research based companies. They may be available from local, state or federal agencies, as well as private industry and foundations.

 

Debt Types and Sources:

TRADITIONAL DEBT: Banks or other commercial lending organizations, savings & loans, credit unions, home equity loan, lines of credit.

 

GOVERNMENT SOURCES:

--SBA LOANS are guaranteed loans and are accessed through a bank (with the exception of the Microloan program).
7(a) loan program: financing for general purposes or to meet specific financing needs.
Low-Doc loan program: quick & easy program for providing guarantees on small business loans of $150,000 or less.
SBA 504 loan program: Finances a portion of a business' fixed asset acquisition with a fixed interest rate loan in combination with third party financing and equity.
Microloan: Provides very small loans to eligible businesses needing limited amounts of borrowed funds.
--FARMERS HOME ADMINISTRATION: guaranteed loan program to assist projects that save jobs, improve business, or contribute to economic stability of rural areas.
--EXPORT-IMPORT BANK: offers short-term working capital, in combination with the SBA, to exporters through the Export Working Capital Program.

 

LEASING COMPANIES: Traditionally a source for equipment leases, some leasing companies may also provide funding for inventory purchases and leasehold improvements.

 

COMMERCIAL FINANCE COMPANIES: Provide loans to purchase inventory and equipment. They charge higher rates of interest than banks, but are more willing to approve a loan request and process the applications quicker than do banks.

 

INVESTMENT BANKERS/MERCHANT BANKERS: Function as agents for small businesses. They find dollars from many different sources, identify strategic partners, and assemble unique investment structures. Investment and merchant bankers are good experienced deal makers.

 

FACTOR COMPANIES: Purchase an existing company's accounts receivable at a discount, thereby freeing cash sooner than if you had to collect the money yourself. You transfer title of your accounts receivable to the factor company in exchange for cash payment.

 

CUSTOMERS: Potential customers may be interested in offering financial help as you start or expand. They are interested because you would provide them with another source for a product or service they need.

 

SUPPLIERS: If you resell inventory or sell goods that you manufacture, your suppliers can ship necessary materials and give you 60 or 90 days to pay for them.