Finance Entrepreneurial FIN310

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Business Finance

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  • Determine Funding Sources (Chapter 13)
  • Remember the point of a business plan is to sell your idea to venture investors, lenders, etc. Determine and discuss the initial funding options for the first three years of your venture. Include the timing/Life Cycle Stage that each funding source will be utilized.
    • Owner Investment
    • Friends and Family
    • Small Business Credit Card
    • Business Angels
    • Venture Capitalists
    • Commercial Bank loan
    • SBA Loan
    • Grant Funding
    • Strategic Partnership with Existing Corporation

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Summary Almost all emerging ventures are best served by ob- backed initiatives for revolving loans to small busi- taining equity financing through selling shares of ness, factoring and receivables financing, venture common and preferred stock. The major sources of lending and leasing, mortgage financing, and direct equity financing for such ventures are business angels public offerings as alternative sources of debt, equity, and professional venture capitalists. Equity financing and hybrid financing. While we believe that most has the advantage of not requiring periodic pay- ventures will be served best by seeking equity financ- ments; there is no default clause that allows the ven- ing, some of these alternative sources can bridge a ture to be forced into bankruptcy proceedings. current or ongoing financial gap. Perhaps more im- Nonetheless, equity financing, by design, dilutes the portant, the mere presence of alternatives can pro- founders' ownership of the venture. Many entrepre- vide important competition to those seeking to neurs wishing to preserve ownership will seek out provide equity financing. Thus, these alternatives debt financing wherever feasible. can affect the bargain that the venture strikes with We have discussed traditional and government- its equity investors. guaranteed loan programs, state- and municipal- Key Terms business crowdsourcing business incubator crowdfunding direct public offerings seed accelerator venture leasing equity crowdfunding factoring receivables lending rewards-based crowdfunding Discussion Questions 1. What are business incubators and seed accelera- tors? How do they differ? 2. What is meant by the terms business crowdsour- cing and crowdfunding? 3. Describe the two major types of crowdfunding. 4. What are the five Cs of credit analysis? 5. Name three of the common loan restrictions and explain how they relate to new venturing financ- ing. What are some additional common loan restrictions? 6. What is meant by venture banks? How do they differ from traditional commercial banks? 7. Why are new ventures at a disadvantage in re- ceiving debt financing 8. Why is credit card financing attractive to entre- preneurs? What are the risks? 9. What is the EB-5 immigrant visas program? 10. What is the Small Busines Administration (SBA). when was it organized, and what was its purpose? 11. Identify and briefly describe four basic SBA credit programs 12. Compare the characteristics in terms of loan amounts, lenders, and SBA role in 7(a) loans ver- cm 50 aans 13. What is a Small Business Investment Company (SBIC)? 14. What types of advisory services are available from the SBA? 15. What is a debt guarantee and how does the SBA back a small business loan? 16. In which research areas does the SBA provide supplemental programs? 17. What are some characteristics of a Community Development Financial Institutions (CDFI) loan? 18. What are factoring and receivables lending? 19. Describe examples of customer funding used to reduce financing needs. 20. What is venture leasing? How does it differ from traditional leasing? 21. What is a direct public offering? 22. From the Headlines-Solix: Describe the alter- native financing Solix arranged for the launch of its biofuels production facility. Comment on your impressions of what at the time at tracted the investors. Figure 13.3 Small Business Administration Sources op hinancial capital CREDIT PROGRAM LENDERS LOAN CHARACTERISTICS SBA ROLE 7lal Loan Commercial bank, credit Up to $2.000.000, 7 to 10-year Approves loan and union, or financial services loan, can be used for most guarantees up to 8 business purposes, including loan value the financing of working capital needs Commercial bank jointly Up to $4,000,000 for fixed Approves and guar with not-for-profit Certified assets and up to $2,000,000 for development compa Development Company other business needs portion of debt Not-for-profit or Up to $35.000 to very small firm Provides a direct la government-affiliated for general business needs community organiza Community Development which reloans the fu Financial Institution (CDFI) small amounts Small Business Investment No limit, several-year loan Borrows money to be Company (SBIC), a private provided by debenture SBIC: to SSICs and guara for-profit organization SBICs also make loans in payment to investor exchange for equity investments Microcar Venture Capital Source Robb Mandelbaum, "Does the SBA Still Matter?" Inc (May 2007), pp. 101-112. PREVIOUSLY COVERED Chapter 12 discussed professionally managed venture capital. We presented a brief history of the industry with its ups and downs and its sources and uses of funds. An important aspect of professional venture investing is the process of finding relevant venture capitalists and preparing for the screening processes they use in determining the basis upon which they will invest in a venture. We discussed the six-minute screening and the implications it has for the proper preparation and presentation of a business plan. LOOKING AHEAD Chapter 14 discusses important concepts in structuring a venture's securities. We provide an introduction to primitive securities (e.g., bonds and common stocks) and derivative securities (e.g., warrants and convertible preferred). We introduce the enterprise valuation method, an easier technique to apply when the venture uses complex financing. These materials will pave the way for discussing the meth- ods available for harvesting a successful venture. CHAPTER LEARNING OBJECTIVES In this chapter, we consider a variety of government and private sources of new ven- ture funding. We also consider financing traditionally available only to more mature ventures, including commercial banking loans. After completing this chapter, you will be able to: 1. Describe the benefits to entrepreneurs of belonging to business incubators and seed accelerators 2. Explain how business crowdsourcing can be used to reduce financing needs. 3. Describe the differences between rewards-based crowdfunding and equity crowdfunding. 4. Identify relevant sources of debt-oriented financing. 5. Discuss government loan guarantee and microcredit programs. 6. Describe factor financing and compare it to receivables financing through a bank. 7. Explain what differentiates venture lending and leasing from traditional lend- ing and leasing.
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Running head: FINANCE ENTREPRENEURIAL FIN310

Finance Entrepreneurial
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FINANCE ENTREPRENEURIAL FIN310
Finance Entrepreneurial
Finance entrepreneurial can be understood as the resource and value allocation that is
used in new ventures. All entrepreneurs face so many challenges ranging from the amount of
money that should and can be raised up to where the money should come from. Finance
entrepreneurial comes in at this point to provide solutions to these challenges. Financial
planning is very important in entrepreneurship as it gives entrepreneurs the chance to
approximate the amount of money and the time needed to begin their venture and then
maintain its momentum. Before starting a venture, enough capital is required, and one must
come up with appropriate ways of raising funds. This paper seeks to explain the funding of a
business, and the timing that each funding source can be utilized. Belo...


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