Sources of Financing and Assess Collateral

Credit

As a last resort, an entrepreneur might finance a new business with credit cards. This is an expensive way to finance a new business, but it is sometimes the only way to obtain the cash needed to launch the company. If this is the route that entrepreneurs choose to take, they need to make sure that the debt can be paid off within a few months to avoid paying a huge amount in interest.

Investors

Aside from friends and family, other investors that could be another source of financing for a small business include angel investors. Angel investors are groups of private wealthy investors who help entrepreneurs finance a new business by investing anywhere from $50,000 to $2 million. Angel investors supply the start-up funds with the goal of making a return on the money invested.

Friends and Family

At the very early stages of any start-up, entrepreneurs are likely to raise money from friends and family. Entrepreneur should keep in mind that regardless of how well they know a potential investor, it is wise to draw up a contract to avoid any confusion down the line, especially if the business is a success.

_____ is an expensive way to finance a new business.

Credit

Loans are usually offered at the full value of the collateral.

False

Loans

For most new businesses, getting a traditional bank loan is unlikely because banks usually will only consider companies that have been in business for two years. Although the Small Business Administration (SBA) does not loan money to entrepreneurs, it does back loans from outside lenders and can help new businesses take the steps to obtain a business loan.

_____ have specific requirements that need to be met in order for an entrepreneur to be considered.

Grants

Self-Financing

Many entrepreneurs use money from a savings account to finance a new business. A hurdle entrepreneurs deal with when starting a new business is the unwillingness to give up the income made from a current job for a new risk that might not pay for several months. A strong savings account can help to keep personal expenses paid during the time it takes the new business to begin bringing in money.

Grants

The federal government or private associations might fund grants. Grants have specific requirements that need to be met in order for an entrepreneur to be considered. For example, grants may be for a woman-owned small business or for a technology-specific business. If an entrepreneur qualifies for a grant, it might be just the funding needed to start the business.

The bank can advance 65 to 80 percent of the value as soon as the goods are shipped.

accounts receivable

A group of private wealthy investors who help entrepreneurs finance a new business by investing anywhere from $50,000 to $2 million are called _____.

angel investors

Collateral

assets used as a guarantee or security for the payment of a loan

Sixty to sixty-five percent of its value can be used as collateral for a loan.

equipment

An entrepreneur might use _____ in the very early stages of a start-up.

friends and family

_____ can be used for up to 90 percent of its assessed value.

real estate

An entrepreneur uses _____ when taking money from a savings account to finance a new business.

self-financing