Funding: Debt and Small Business Owners

Topics: Debt, Small business, Loan Pages: 3 (1072 words) Published: May 7, 2013
Small business owners may need outside funding when running their company. Many small businesses face numerous difficulties generating positive cash flows during the early months and years of operations. External funding is used to offset the slow cash flows resulting from these situations. Business owners may not be able to secure traditional small business funding through bank loans or equity investments. In the absence of traditional funding options, small business owners may look to alternative funding sources for securing business capital. Venture Capitalists

Venture capitalists represent private investors who give small business owners funding in exchange for a business ownership stake. These investors often require small businesses to provide them a substantial financial return in addition to ownership. Venture capitalists often have experience in the business industries where they invest money and may provide small business owners with experience or expertise in particular business functions. These individuals may also be interested in growing the small business and taking it public to cash out their invested capital. Angel Investors

Angel investors are individuals who use personal funds to finance small business ventures. These individuals are often more patient with business owners and may not require a substantial return on investment. Small business owners may also be able to borrow funds from angel investors in varying amounts for short- or long-term time periods. Although angel investors often allow favorable terms regarding invested capital, they may also require an ownership stake in the company. This ownership stake allows the investor to ensure the small business owner makes the best decisions and the business venture will be able to repay the investor’s capital with interest. Credit Cards

Small business owners may use business credit cards for funding different purchases in their company. Credit cards allow business owners to have an open...
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