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2.1 Know Your Financing Options - IntroductionBy now you should have a good idea of how much money you need to finance the cost of expanding your business. But where will you find the capital? You should look at three possible sources of funds: internal, conventional external and risk capital. 1. Internal SourcesBegin by looking inside your own company. Can you make funds available by increasing your company's efficiency? For example, can you negotiate better terms with your suppliers, or lower your accounts receivable and inventory to free up working capital? 2. Conventional External SourcesNext, look for funding from conventional sources, such as your bank. Lines of credit, long-term and short-term loans, and mortgages are examples of conventional financing. 3. Risk CapitalFinally, once you've explored both internal and conventional sources, then consider risk capital financing. At this point, too, you'll need to look at your overall capital structure. How One Company Used All Three SourcesNew Tech Distributors Corp. (New Tech) is our case example company. It needs $1,575,000 to cover the costs of expansion. The owners are going to use a mixture of sources to get the capital they need: $775,000 from internal sources, $200,000 from conventional sources and $600,000 in risk capital (in the form of equity).
In This StepYou'll learn about the different types of financing options open to you, and the different uses and merits of each on the following pages:
The New Tech StoryFollow the fictional company New Tech Distributors Corp. (New Tech) as it pursues venture financing. This case example gives you a feeling for the "real" data and strategic decisions you'll be facing. You can always get to it through the link on the left menu bar. |
Updated: 2005/07/12 |
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