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Five Ways to Finance Your Business
If you're planning to start your own business, or if your current business is in
jeopardy due to a lack of funds, you'll want to read the following report. Our finance
experts have put together a summary of important steps to take in financing your
business. This report touches on the first two steps. The rest of the series will appear
over the next two days.
1. Recognizing and Understanding Your Capital Needs
Financing your business requires careful planning and research. First, you need
to figure out exactly what kind of financing you require.
Equity Capital
Equity investors become owners of the company. Investments made by the
company's owners stay with the company for the entire time that it is in business.
Equity investors share in the profits of the business. If a business fails, equity capital is
paid back only if there is money left after all other creditors are paid.
Debt Capital
Debt capital is money that can come from a variety of sources. Unlike equity
capital, debt capital is usually paid back with interest and is only available for a
defined period of time. Debt capital can be used in several different ways: to start a
new company (start-up capital), for the continuation of an existing company (working
capital), or for the growth of an existing company (growth capital).
Deciding which type of capital your business needs will make it easier for you to
figure out where to seek your financing.
2. Focusing Your Search for Capital
Next, you need to become familiar with the different types of funding sources
that you can pursue.
Debt: Traditional/Commercial Bank Funding
Do you need a new site or equipment for your established business? Do you need
funding to ride out a difficult season? Do you need to develop a new product line
immediately? If so, you may wish to turn to a traditional commercial bank for short-
term funding.
Equity: Venture/Risk Capital
If you plan to create a technology business that has a high potential for growth,
you should consider venture capital. Sources of venture, or risk, capital include
investment companies and wealthy individual investors. Some venture capital sources
invest only in the initial phase of the new company's development.
In our next article, we will explore other sources of funding such as self-funding
and the public stock market.
1. This article from Business News Daily is written for people __________.
A. who want to start a new business or fund an existing one
B. who have to travel a lot for business and need tips
C. who have legal questions about international transactions
2. According to the experts at Business News Daily, if you are considering
ways to finance your business, the first thing you should do is __________.
A. contact some venture capitalists
B. evaluate your financial needs
C. evaluate your needs for equipment
3. The article points out that investments made by a company's owners
usually stay with the company for a few years.
A. True
B. False
4. If you were looking to acquire working capital for the day-to-day
operations of an existing business, you would most likely pursue __________.
A. debt capital
B. owners' capital
C. venture capital
5. If you were looking for extra capital to help your business during a
financially rough period, you would probably seek __________.
A. venture capital
B. traditional commercial bank funding
C. self-funding
6. Venture or risk capital comes from __________.
A. commercial banks
B. low-interest loans
C. investment companies
7. The next article in Business News Daily will be about __________.
A. finding the best location for your new company
B. tips on hiring the best employees for your business
C. more sources for financing a new or existing business
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