Sources of Financing: Equity and Debt

Capital Definitions: Capital is wealth used to produce more wealth. Small businesses often rely on Layered Financing, which involves piecing together funds from multiple sources.
Equity Capital: Represents personal investment by owners. It is known as "risk capital" because investors lose money if the business fails. It does not require repayment with interest but necessitates giving up some ownership.
Debt Capital: Must be repaid with interest and is carried as a liability. It is often expensive for small firms due to the risk/return tradeoff.
The Credit Crunch: Raising capital in the $100,000 to $3 million range is identified as the most challenging financing gap for entrepreneurs.

Personal Savings: The first source of equity and the primary method for Bootstrapping.
Friends and Family Members: Often used as bridge financing; arrangements should be strictly business with written contracts and exit plans.
Crowd Funding: Utilizing social networking to raise money from ordinary people (as little as $100). Regulated by the Jumpstart Our Business Startups (JOBS) Act.
Accelerators: Provide small amounts of seed capital and significant coaching/mentoring for 3 months to 1 year. Examples include AngelPad and Techstars.
Angels: Wealthy individuals who provide "patient money" in the early stages, typically between $100,000 and $5 million. Approximately 298,000 angels in the U.S. invest $21.3 billion annually.
Venture Capital (VC): Private, for-profit companies seeking high-growth investments in the $5 million to $25 million range. Less than 1% of business plans are accepted.
Corporate Venture Capital: Large corporations that provide capital and technical expertise; involved in 13.4% of all VC deals.

IPO Definition: Raising capital by selling shares to the public for the first time.
Candidate Characteristics: Requires high growth, scalability, 3 to 5 years of audited financial statements, and a sound management team. The average company age for an IPO is 9.7 years.
Nonpublic Registrations: Regulation D (Rules 504, 505, and 506) simplifies registration requirements for small company capital access.

Commercial Banks: Act as "lenders of first resort." The average micro-business loan is $12,455, while the average small business loan is $342,500.
Loan Types: Includes short-term (commercial loans, lines of credit, floor planning) and long-term (installment loans, term loans) options.
Asset-Based Lenders: Borrowing against collateral like accounts receivable or inventory based on an Advance Rate.

Small Business Administration (SBA): Guarantees over 95,000 loans totaling more than $33 billion annually.
7(A) Loan Guaranty Program: The most popular SBA program where private lender loans are guaranteed by the SBA.
Section 504 Certified Development Company Program: Designed for purchasing fixed assets and expanding facilities.
Microloan Program: Provides small amounts from $100 to a maximum of $50,000.
Federal Programs: Includes the Economic Development Administration (EDA), Department of Housing and Urban Development (HUD), and Small Business Innovation Research (SBIR).

Factoring Accounts Receivable: Selling accounts receivable outright to a factor at a discount.
Leasing: Renting assets instead of buying to preserve capital.
Rollovers as Business Startups (ROBS): Using retirement savings to fund a startup.
Merchant Cash Advance: A provider pre-purchases credit/debit card receivables at a discount.
Peer-to-Peer (P2P) Lending: Web-based platforms where online communities of lenders fund businesses.