Chapter Outline

LO 9.1  Determine the financing needs of your business.

A straightforward process for determining financing need is to (1) list the assets required for your business to operate effectively and the needed expenses; (2) determine the market value or cost of each asset; (3) identify how much capital you are able to provide; and (4) subtract the total of the owner-provided funds from the total of the assets and expenses required. This figure represents the minimum amount of financing required.

LO 9.2 Define basic financing terminology.

To procure financing, you must understand the basic financial vocabulary. Each major form of capital (debt and equity) has unique terminology that defines the details underlying financing agreements.

Each form of capital has pros and cons that make it more or less desirable to the entrepreneur under given circumstances.

LO 9.3 Explain where to look for sources of funding.

The search for capital and the application process can be unsettling as you sort through the various sources of funds. Major sources of debt financing include commercial banks, finance companies, government lenders, and insurance companies. Sources of equity include personal funding sources, partners, venture capital firms, angels, and stock offerings. Finding capital is one of the most important tasks you face in starting and managing a business. A thorough understanding of the issues involved will enhance your chances of finding the best source for your business.