Chapter 13

An angel

is an investor who is interested in financing start-up ventures.

The reserve for fixed expenses

is maintained for the life of the business and is used if the company should experience a downturn in sales.

Venture capital

is money that is invested in a potentially profitable business by a specialized company whose purpose is to invest in start-ups.

Start-up investment

is the one-time sum required to start a business and cover the start-up costs.

Bootstrapping

means starting a business by yourself, without any outside investment.

Minority Enterprise Small Business Investment Companies (MESBICs).

These are private investment firms, chartered by the Small Business Administration, that provide both debt and equity financing for new small businesses.

Customer Financing.

This can be either debt or equity financing.

Barter Financing.

This financing method involves the trading of items or services between businesses.

Methods of bootstrapping

Using credit cards, using personal savings.

Small Business Investment Companies (SBICs). .

Provide equity financing, as well as loans, for small businesses.

Cash reserves

are needed for an emergency fund and a reserve for fixed expenses.

Start-up expenditures

are those expenses associated with opening a new business.

Formula for Payback.

Start-Up Investment ÷ Net Profit per Month = Payback (in Months)

Relatives and friends and debt financing

are a common source of start-up loans for many entrepreneurs. As with debt financing, relatives and friends are a source of start-up capital for many entrepreneurs. Unlike debt, however, they will take a share of your company.

Credit unions and debt financing

are nonprofit cooperative organization that offer low-interest loans to members.

The emergency fund

is the amount of money a business should have available in the first three to six months for the emergencies that often arise when a company is just beginning.

Payback

is the amount of time, measured in months, that it takes a business to earn enough in profit to cover the start-up investment.

Debt financing

is when you borrow what you need to start your business. This increases your company's debt.

equity financing.

to sell shares of ownership in the business, usually at the beginning.

Banks and debt financing

Banks are the major source of debt financing for entrepreneurs. To determine how much it might be willing to loan you, the bank will review your business's debt-to-equity ratio.

There are three main sources of debt financing:

Banks, Credit Unions, Relatives and Friends (Ifight4myfriends)

Debt Financing

Borrowing money for a business increases its debt (liabilities). You must repay the loans or you risk losing the business.

What are the economic consequences of using some form of financing for your business?

Debt Financing, Equity financing.

Partners.

The most common source of equity financing is giving a percentage of the ownership of a business to a partner.

Equity Financing

When using equity financing, your owner's equity changes. With equity financing, you give up some of your company and perhaps some control. Consider the consequences of using equity financing to obtain capital.