Stage 10 Arranging Financing. Sources of Financing How will you finance your business? Personal savings Credit from suppliers Loans and mortgages from.

Stage 10

Arranging Financing

Sources of FinancingHow will you finance your business?

Personal savingsCredit fromsuppliers

Loans and mortgages

from banks, creditunions and others

Governmentassistance programs

Lovemoney

Equity capitalfrom private

sourcesLeasing

Friends andneighbours

Local professionalsand angelinvestors

Prepare loan or grantrequest package

EmployeesVenture

capitalists

Advantages of Debt Financing

• Useful for meeting a short-term deficit in cash flow

• Do not have to give up or share control of your business

• The term of the debt is generally limited

• May be acquired from a variety of lenders

• Information needed to obtain a loan is generally straightforward and part of your business plan

• The interest paid is tax deductible

Disadvantages of Debt Financing

• Can be difficult to obtain for a risky project

• Taking on too much debt can be a burden on your cash flows

• If the funds aren’t used properly, it may be difficult for the business to repay the loan

• If it is a “demand” loan, it can be called by the lender at any time

• The lender may require you to provide a personal guarantee for the loan

• Lenders will often insist on certain restrictions being put into place

Advantages of Equity Financing

• An appropriate investor can contribute expertise, contacts, and new business as well as money

• Equity may be the only option to finance high-risk ventures

• Equity can be used to fund larger projects with longer time frames

Disadvantages of Equity Financing

• You may have to give up some ownership and control of the business

• There is always the danger of incompatibility and disagreement among the investors

• It is much more difficult to terminate the relationship in disagreements occur

Major Sources of Funds

• Personal Funds• “Love Money”

• Banks and Similar Institutions• Operating Loans• Term Loans

Major Sources of Funds

• Federal Government

• Canada Small Business Financing Program

• Industrial Research Assistance Program (IRAP)

• Program for Export Market Development (PEMD)

• Community Futures Development Corporations (CFDC)

• Women’s Enterprise Initiative Loan Program

• Aboriginal Business Canada – Youth Entrepreneurship

• Business Development Bank of Canada (BDC)

Major Sources of Funds

• Provincial Government Programs

• Venture Capital and “Angel” Investors

• Other Sources of Financing• Personal Credit Cards• Canadian Youth Business Foundation • Suppliers’ Inventory Buying Plans• Leasing vs. Buying• Negotiated Leasehold Improvements• Advance Payment from Customers

Exit Strategies for Private Investors

• Acquisition of the business by a third party

• Sale of the investor’s interest to a third-party investor

• Buy-back agreement

• Management or employee buyout (ESOP)

• Debt repayment

• An initial public offering (IPO)

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