Steps to Growth Capital Self-Study GuideStep 2

2.1 Know Your Financing Options - Introduction

By 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 Sources

Begin 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 Sources

Next, 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 Capital

Finally, 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 Sources

New 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).

New Tech's Funding Sources

Internal sources: cash flow and operating line	$775,000
Conventional external source: bank loan	$200,000
Risk capital financing: equity	$600,000
Total	$1,575,000

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