So you want to start a business and need funding. Here are more than a dozen ways to finance your new business, from using your own assets all the way to an initial public offering, just like Facebook.

1. More Than A Dozen Ways to
Fund Your New
(or growing)
Business
Part One of Our Small Business
Management Course
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2. Welcome &
Introductions
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3. Topics
 How To Find Start Up Funds  Angel Investors
 Company Funding Stages  Micro Loans
 Sweat Equity  Bank and SBA Loans
 Using your Assets  Other SBA Financing
 Personal Loans  Venture Capital
 Friends and Family  Mergers and Acquisitions
 Customers  Trade Credit
 Crowd Funding  Initial Public Offering
 Equity Crowd Funding
 Social Lending
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4. How To Find Your Start-up Funds
and become a
publicly traded
company.
Eventually, a successful start
up would offer shares to
investors.
and/or venture capitalists . . .
Then move on to banks
financing . . .
Next, find angel investors . . .
Then raise seed money
from personal contacts . . .
Starting (think Apple & Facebook)
with personal
savings. . .
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5. Company Funding Stages
IPO or Sale
Capital to
maintain
Capital to expand company
product to national until IPO
or sale
Initial capital is markets
gone and now
need capital for
full scale
Completing product manufacturing
development and sales
(typically in business
for year or les
Capital for product
development,
market research &
building
management team
Concept
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6. Start With Sweat Equity
 Entrepreneurs can “fund’’ the first stage of their
business by using their own unpaid labor and
resources to create value.
 Facebook was launched from a Harvard dorm room
by Mark Zuckerberg, Dustin Moskovitz, Chris
Hughes and Eduardo Saverin.
Advantages:
With you own resources, you can develop an idea on your
own time.
You control the decisions and any intellectual property you
create.
Precaution: If you have partners, make sure you get full
credit for your contributions.
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7. 68 percent of start-up financing comes directly
Use Your Assets from the pocket of the business owner.*
*source: Consumer Reports ** source: Smart Money
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8. Personal Loans, Credit Cards
The initial funding for a fledgling private business often comes from its founders.
Advantages: You retain control of your project. You’re also
proving to future funders that you’re willing to put your own
money at risk to launch your business.
Can it Work?
Convenience store clerk Kevin Smith sold part of his
comic book collection and charged as much as he
could on his credit cards to finance his 1994 film,
“Clerks’’.
He raised $27,000, including contributions from
friends and family. The film grossed more than $3
million.
Cautions: Keep careful records of agreements and credit
cards is that they carry very high interest rates.
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9. Friends and Family
 When a young enterprise produces promising
early results, the founders’ friends and family
often chip in money to help it grow.
 Borrowing money from friends and family to
finance a new business is a terrific idea -- in
theory.
 Banks and other lenders will demand airtight Advantages: Friends and family often help
business plans and often three years of earnings,
before they will lend you anything. because they want to support you, not for
an expected profit.
 Private loans can offer significant advantages
over traditional loans.
Interest rates -- if interest is even charged -- are
generally much lower than those offered by
banks.
Cautions: Put everything in writing and
have a lawyer review it.
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10. Customers
Now, this one might seem illogical at first. How can customers help finance your new business if it isn't
even a business yet? The trick is to use your business plan and your charm to convince people to become
your customer even before your business is off the ground.
Let's say, for example, that you want to start a company that builds custom computers for
videogame enthusiasts.
You build a prototype of your computer, bring it to a videogame convention
and a large computer retailer wants to buy 1,000 units.
You don't have supplies to build 1,000 units and no bank is going to give you a loan
to cover the costs since you're working out of your parents' basement.
You can have the retailer sign a letter of credit saying it will pay for the 1,000
units upon delivery
With that letter of credit, you can convince suppliers to offer trade credit until
the computers are delivered.
Here's another customer-based technique. Let's say you're a hairdresser with a loyal clientele. If you decide to start
your own beauty salon, you might want to ask your long-time clients to become investors. Throw in free haircuts for
life, and you may have yourself a deal.
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11. Crowd Funding
 Innovative businesses use sites like as
Kickstarter and Indiegogo to appeal for
financial support through
“crowdfunding’‘ campaigns.
 Entrepreneurs attract backers by
posting their imaginative plans, and by
promising perks to those who pitch in
some money.
 Those perks range from product
samples to an invitation to join a
company-sponsored activity.
Advantages:
You might raise significant sums made up mainly of small amounts from a large group of
individual lenders.
Your project may even attract press coverage and new ideas.
Caution: Funding contributions might be taxable as personal income or business profits.
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12. Equity Crowdfunding
 This new form of crowdfunding authorized by the JOBS Act will
allow private sales of company shares through social media sites
and other intermediaries.
Advantages: The
regulatory
requirements, such as
 Companies could raise as much as $1 million a year financial disclosures,
through small private investments from an unlimited would be less stringent
than general SEC rules
number of people. for registering securities
or for making an initial
public offering of shares.
 Crowdfunding websites are expected to crop up after the
Securities and Exchange Commission formulates the Cautions: Your many new
regulations they must follow. shareholders have rights
under federal and state
laws. Complying with those
rights could soak up
company time and money.
Check out: crowdsourcing.org for details and sites you can use.
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13. Social Lending
One of the more popular social lending sites LendingClub.com uses a system based on your
is called Prosper.com. credit rating. Terms are based on your rating.
All loans on social lending sites are three-year Once the loan is approved, the amount is deposited directly
unsecured loans. into your bank account. Monthly payments are then
deducted from your bank account to pay off the loan.
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14. Wealthy individuals called angel investors like to make financial
Angel Investors bets on early stage private companies that are capable of rapid
growth, but that are still too small to seek millions from venture
capital firms. This also called private placements.
Pros & Cons of Angel Investors
Check out: Xpert Financial and Second Market if you need to sell privately held shares.
Saunders Learning Group, LLC, Andover, KS

15. Micro Loans
 Available from the Small Business Administration (SBA) a micro loan helps a
small business secure the financing they couldn't get from traditional lenders
like banks.
 Under the micro loan program, the SBA works with 170 non-profit lenders
around the country called intermediaries. The intermediaries receive money
from the SBA, which they use to make small loans at relatively low interest
rates.
 Micro loans can be for as little as $100 and as high as $35,000. The SBA says
the average loan size is $13,000. Interest rates vary depending on the size and
duration of the loan. The maximum length of an SBA micro loan is six years
[source: U.S. Small Business Administration].
 To apply for a micro loan, you'll need to be within the local lending area of
one of the 170 non-profit intermediaries. Most microlenders also require
borrowers to complete business training and business planning seminars
before receiving the loan.
 Some microlenders specialize
in lending to businesses owned
by women, minorities, the
disabled or other economically
marginalized groups.
[source: Consumer Reports].
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16. Bank and Small Business Administration Loans
To help entrepreneurs navigate the loan process, web-based outfits such as Multifunding.com are now offering to connect
you with lenders, guide your choice among banks and help with the loan application.
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17. Bank and Small Business Administration Loans
Example: Highland Brewing Company in Asheville, N.C. was producing 6,500 barrels of beer a year as a craft brewery.
With the help of $1.9 million in loans, he recently built a state-of-the-art production facility that can make 30,000
barrels a year. Highland's products are now sold in seven southeastern U.S. states.
Advantages: You may qualify for loan guarantees or lower interest rates through programs of the Small
Business Administration or local economic development agencies. The bank takes no ownership share of
your company.
Cautions: To get a loan on favorable terms, you need a solid business plan, extensive documentation of your
creditworthiness. A bank will often require collateral or other existing business assets that it could seize in the event
of a default.
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18. Other SBA Financing
 The U.S. Small Business Administration (SBA) offers a loan guarantee program for new businesses.
These so-called 7(a) loans are named after section 7(a) of the Small Business Act.
 With a 7(a) loan, the SBA promises to pay back a portion of the loan if the small business borrower
defaults.
 They're designed for borrowers who wouldn't otherwise qualify for a standard commercial loan because
of bad credit or little collateral.
 The SBA guarantees a portion of the loan. In exchange for this guarantee, the lender must adhere to
rules about interest rates and other loan terms.
 Small Business Investment Centers (SBIC) are another SBA program to
help finance small businesses. SBICs are privately held investment
companies that adhere to SBA guidelines in exchange for SBA
loan guarantees.
 There are more than 400 SBICs in the United States, some
specializing in start-ups and others focusing on certain industries
or geographic areas [source: SBA].
 SBICs can offer financing either through loans or as equity investments
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19. Venture Capital
Venture capital firms devote several million dollars to the growth of a young company that has
established its potential to market valuable new technology, goods or services. Venture firms invest
pools of money, raised from wealthy individuals, in enterprises with potentially high rates of return.
Advantages: Venture firms bring management
expertise and guidance in realizing the full
financial payoff for investments in fast-growing
companies.
Example:
Robert Swanson, a then-29-year-old partner at
the venture capital firm Kleiner & Perkins,
recognized the commercial potential of a cutting
edge technique in academic research:
recombinant DNA technology or “gene splicing.’‘
In 1976, he joined with UC San Francisco
biochemist Herbert Boyer to found Genentech,
which used gene splicing to produce drugs
including human insulin and human growth
hormone. The VC firm contributed early funding
Caution: In exchange for risking their capital, venture
to Genentech.
firms seek a substantial ownership stake, and often,
seats on the funded company’s board of directors
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20. Mergers and Acquisitions
An entrepreneur’s small private company may reach its next stage of growth by becoming part
of a large corporation that offers to buy it out.
Big companies often acquire creative enterprises whose new product or service dovetails with
their own business activities.
Examples:
Google’s You Tube acquired Next New Networks, an independent producer of online video
programming. Instagram was purchased recently by Facebook for nearly $1 billion. Advantages:
You, your partners and your investors get a cash payout for betting on a winning idea and
bringing it to life. After this “exit’‘ from your investment, you can use your financial gains to
start another company, or to rest from your labors. Caution:
You may forfeit even greater financial rewards that might have been reaped from retaining
control of your company and offering ownership shares to the investing public in an IPO. And if
the acquiring corporation doesn’t ask you to stay on, other people will explore the full
potential of the business you nurtured.
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21. Trade Credit
Trade credit is the lifeblood of an established
businesses.
It works very simply:
 When you buy parts from a supplier, the supplier
delivers those parts with an invoice for the amount
due.
 Because you have an established relationship with
the supplier, he doesn't ask you for cash on
delivery (COD).
Trade credit is based on trust.
You have a period of time (30-60 days) to pay
An advantages is that it's interest-free
without incurring interest or penalties. That's
for a fixed period of time, perhaps 30 or
called trade credit. 60 days.
 Trade credit is based on trust. As a new business,
Even better, some businesses offer
you're at a disadvantage, because you don't have an
discounts if you pay the invoice within a
established track record of paying invoices on time.
very short period of time, maybe a
 One of the greatest advantages of trade credit is week or 10 days.
that it's interest-free for a fixed period of time.
As a new business, it might take a lot
 As a new business, you're at a disadvantage,
because you don't have an established track record of legwork and a little luck to secure
of paying invoices on time. trade credit, but it's worth it.
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22. Initial Public Offering
 A privately owned company can raise a substantial amount of fresh
capital for further growth by offering shares to the general public in an
initial public offering.
 The private enterprise becomes a publicly traded company whose
shares can be bought and sold on
 the New York Stock Exchange
 the Nasdaq
 or other trading platforms.
 After the IPO, the pre-existing ownership stakes of the company
founders and early investors have a specific value determined by the
stock’s daily trading price.
Advantages Cautions
Your company can fund new growth opportunities. The value of company shares may fall well below their
initial offering price, depending on the ongoing
You and other shareholders may benefit if share prices rise
performance of the business and economic conditions.
with profits.
Registration as a publicly traded company brings new
Founders and early investors, such as venture firms, have
requirements for frequent public disclosures of
opportunities to cash out, or “exit’’ from the investment by
financial reports, and compliance with other SEC rules.
selling their shares on a stock exchange.
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23. Questions
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24. Post Workshop Action Plan
 Complete the Post Workshop Action Plan
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25. Training from Saunders Learning Group
Saunders Learning Group provides a variety
of training programs, workshops and
seminars targeted to the financial services
industry.
Programs are available in a wide range of
topics, and we are specialists in developing
custom programs that are targeted to your
needs.
Contact the founder, Floyd Saunders at
316-680-6482 or at
floyd@floydsaunders.com for more
information.
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26. Reference Material
Figuring Out Wall Street Consumer’s Guide To
Financial Markets
By Floyd Saunders
Publisher: Saunders Learning Group
ISBN: 978-0-9824019-0-3
available from Amazon, B&N, and
http://www.figuringout wallstreet.com
or www.floydsaunders.com
Book summary: From bank failures to home foreclosures and panic
around the world, Figuring Out Wall Street, is the concise guide to help
everyone understand how this latest crisis happened, who was responsible and
what to do now to restore our financial systems. Written in an easy to
understand manner, even the most complex financial concepts are easy to
digest. This book provides help to monitor investments with a review of
investment products, financial regulators and economic indicators. Learn how
the stock market exchanges work and the world of investment banking, hedge
funds, venture capital and private equity. Every chapter includes action plans for
investing.
Saunders Learning Group, LLC, Andover, KS