Accessing Capital Overview:

All businesses, regardless of their size, require capital – money with which to get started, operate, 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 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 guarantees 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:
        • federal programs like the US Small Business Administration (SBA) where there are eligibility requirements
          • 7(a) (their primary program) which guarantees 75% of a loan up to $2,000,000
          • Export Working Capital assists exporters in meeting their short-term export working capital needs
          • Helps small businesses meet their short-term and cyclical working capital needs
          • Loans designed to help enter and expand into international markets or better compete internationally
          • Community Advantage Loans: Certified Development Company(CDC 504) and micro-loans for mission-focused, community-based lenders
        • State programs like the Connecticut Department of Economic and Community Development (DECD)
          • Small Business Express Program provides loans and grants to Connecticut’s small business to spur job creation and growth. 
          • Economic and Manufacturing Assistance Act, incentive-driven direct loans for projects when there is strong economic development potential.
        • Financing and Management Assistance Programs
        • Asset-based lenders (there are many, it would be best to research and compare the offerings)
        • Manufacturer Leasing (inquire about the equipment manufacturer)
  • 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 its 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 that 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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Exchanging hundred dollar bills.