Accessing Capital Overview:

All businesses, regardless of their size, require capital – money with which to get started, to operate, and to grow and expand.  Whether you are starting or expanding your business, sufficient ready capital is essential.  Before you go to secure funds, be sure that you:

  • have a well thought through business plan to that shows an understanding of your market, your competition and the cash flow potential of the business
  • have properly calculated what you will need
  • understand the objective and requirements of the funding instrument
  • understand the risks and benefits of the financing opportunity

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Financing Terms and Resources:

  • Debt: money loaned for use by the company. It has to be repaid.
    • Secured (the company guaranties payment) vs Unsecured (very rare for start-ups, but may be possible after a business develops a profitable track record)
    • Short term
      • less than a year, like for seasonal inventory
      • a line of credit/revolving credit agreement with monthly interest, due no later than the maturity date.
      • short term notes, issued for 30, 60, or 90 days
      • letter of credit, serving as payment guaranty from the issuing bank (often for international transactions where the money is held by the bank until a carrier has the goods)
    • Long term
      • more than a year, like for a big piece of equipment
      • term loans
      • mortgage loans are used for real estate
    • Sources
      • Banks (these asset based loans are often in the name of the business, but personally guaranteed by the individual borrower)
      • Banks backed by:
  • Equity: a permanent investment of cash or property in exchange for an ownership interest in the company.
    • This does not have to be repaid, however you are selling part of your business to someone else. They may participate in the operation of the business.
    • The investors will expect to receive dividends and hopes to get their money back with a profit.
    • Sources
      • Joint Ventures
      • Venture Capital Investors
      • Customers who want to secure a source of supply

Additional sources of business capital in CT

  • Personal funds
    • Savings
    • Retirement fund
      • withdrawal - (taxes and penalties may apply)
      • rollovers for business startups -  401(K)/ROBs Business Funding - fees apply (no tax or penalties)
  • Friends and relatives
  • Grants: Organizations provide grants to support a very specific objective. The grant giving organization needs to know that their spent dollars are going to support this objective, which means that grants typically have a significant amount of reporting responsibilities attached to them.
  • Crowdfunding
    • Donation based: the contributor believes in the effort and expects nothing in return
    • Rewards based; the entrepreneur presells the product or service, the contributor hopes they can deliver
    • Equity based: involves the offer of securities which include the potential for a return on investment.
    • Examples: Kickstarter, GoFundMe, IndieGoGo and many more
    • Other benefits besides funding include: marketing, customer engagement and feedback

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Finding Financing for Your Small Business In Connecticut