Loans & Financing

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Access to adequate capital is essential to start or grow a small business; however, a decision to leverage capital should never be made without adequate planning and proper management. Indeed all sources of capital will require you to provide a copy of your business plan. Once you know your specific needs and understand the amount of capital required to grow your business you can begin to sort through the various types of financing options. Small businesses have two choices when in comes to financing, equity financing and debt financing. Each option has advantages and disadvantages that should be carefully weighed. The resources below can help:

Equity Financing

Equity financing is capital acquired from investors in exchange for partial ownership. The primary advantage of equity financing is there is no requirement to pay pack the money invested in the firm on a particular schedule. The chief disadvantages of equity financing are profit sharing and the entrepreneur giving up some control over decision-making. Agreements between a business owner and investor should be reviewed by your attorney and financial professional.

Sources of Equity Financing

Friends and Family are the most common source of financing for new entrepreneurs who may find it difficult to convince professional investors to commit resources to ventures led by individuals without substantial prior business experience. These informal investors typically are motivated less by their potential return than seeing the entrepreneur succeed. As such they may not enter into a business arrangement with out the same level of scrutiny as a professional investor. This is both an advantage and disadvantage. On the one hand this flexibility creates opportunities to find financing that might not other wise be available. On the other hand the informal investor may not understand the risks associated with investment and that they might not come out ahead. Take care to explain your business plan and the risks associated with your venture. If you wind up pursuing financing from friends and family, as an alternative to an equity investment consider a private personal loan.

Venture Capital Firms are investment houses that pool the resources of third-party investors to finance enterprises that have high growth potential but may be deemed too risky for traditional debt financing. In exchange for the investment the venture capital firm not only expects a significant return but also to play an active role in the management, marketing, and planning of the company. Venture capital is available only to a very small percentage of businesses with most firms investing in fields such as biotechnology and information technology.

To find out more about venture capital opportunities in the High Country visit:

Small Business Investment Companies (SBICs) and Rural Business Investment Companies (RBICs) provide venture capital to new and expanding small businesses that may not be served by traditional venture capital firms. SBICs and RBICs are privately managed but are licensed by and partially funded the U.S. Small Business Administration. So called Specialized Small Business Investment Companies (SSBICs) target investment in businesses owned by socially and economically disadvantages populations.

To find out more about SBICs, SSBICs and RBICs in the High Country visit:

Angel Investors are wealthy individuals who invest their own funds to help start up or expand new businesses. Like other equity investors the angel financer expects a high return on their investment in the form of future profits. Many angel investors though are motivated by more than pure monetary return. As successful entrepreneurs or retired executives, they are interested in seeing new firms succeed and will often serve as mentors to newly emerging entrepreneurs.

To find out more about angel investors in the High Country visit:

Debt Financing

Debt financing is capital acquired by borrowing money from a lender to be paid back with interest. The primary advantage of debt financing is the entrepreneur does not give up ownership or a share of future profits. Even though the obligation must be repaid with interest, debt financing can wind up costing less than equity investments which demand substantial returns. On the downside debt financing requires collateralization; that is a guarantee to repay the loan backed by personal assets, such as a home. Failure to maintain loan payments, even if the business fails, can place these assets at risk of foreclosure or repossession.

Sources of Debt Financing

Personal Loans from Friends and Family often are better choice than equity investments by informal investors because they offer clearer terms and a simpler solution to profit sharing. Never enter into a loan agreement, even with loved ones, without a written agreement. Treating such transactions professionally protects the interests of each party as well as the personal relationship. The written agreement should include the amount of the loan, the interest rate, the periodic repayment amount and schedule, and any special terms of the loan. This sample promissory note from the U.S. Chamber of Commerce can serve as the starting point for such agreements. Alternatively you might consider the services of a third-party facilitator such as Virgin Money which will document the loan, process payments, and even report to credit bureaus.

Personal Loans and Lines of Credit is lending based solely on the personal credit and assets of the borrower. Examples of this type of financing include home equity lines of credit, personal credit cards, borrowing against investment accounts, or personal signature loans. While these sources may be provide relatively easy access to capital entrepreneurs pursuing this type of financing should proceed with caution and still have their business plan vetted by a professional.

Business Loans from Commercial Banks and Credit Unions are the most common method of debt financing. Traditional small business loans are used to finance investments in items such as inventory, equipment and buildings since they are backed by tangible assets. Most financial institutions require a thorough application and review process that scrutinizes the business plan, the personal credit history of the entrepreneur, business references, and the financial records of the business. In evaluating a loan application the lender will consider the "Five Cs" of credit: capital, the amount already invested in the business; collateral, what assets will secure the loan; capacity, the ability to repay the loan from the business cash flow; conditions, the business climate for your industry; and character, the experience and track record of the borrower.

Government Assisted Loans provide an alternative source of debt financing when traditional business loans are unavailable to a borrower. The most popular of these programs is the U.S. Small Business Administration's 7(a) Loan Program. Under this program the federal government partners with the local financial institutions to guarantee loan repayment, eliminating some the lenders risk, thus easing access to capital. The maximum loan guarantee under the 7(a) program is $1.5 million and the maximum loan term is generally ten years. A variety of SBA programs exist to support other business and community needs including export and economic development financing. The U.S Department of Agriculture Office of Rural Development also offers a number of direct loans and loan guarantee programs. To find out more about government supported loan programs High Country visit:

Microloans are very small loans, typically less than $10,000, typically made to individuals of modest means, minorities, and women who are otherwise are ineligible for traditional borrowing. These programs generally require participants to complete an entrepreneurship training program. To find out more about microlending programs High Country visit: