Entrepreneurship, 3rd Edition

CHAPTER 11

DEBT AND OTHER FORMS OF FINANCING

Rick Cochran, founder of Mobile Medical International Corporation, SBA Small Business Person of the Year, 2011.

Entrepreneurs at small, growing firms, unlike finance treasurers at most Fortune 500 companies, do not have easy access to a variety of inexpensive funding sources. In the entire world, only a handful of very large firms have access to funding sources such as asset-backed debt securitizations, A-l commercial paper ratings, and below-prime lending rates. Most financial managers of small- to medium-sized firms are constantly concerned about meeting cash-flow obligations to suppliers and employees and maintaining solid financial relationships with creditors and shareholders. Their problems are exacerbated by issues concerning growth, control, and survival. Moreover, the difficulty of attracting adequate funds exists even when firms are growing rapidly and bringing in profits.

This chapter describes various financing options for entrepreneurs and identifies potential financing pitfalls and solutions. We also discuss how these issues are influenced by the type of industry and the life cycle of the firm and how to plan accordingly.

Getting Access to Funds—Start with Internal Sources

Entrepreneurs requiring initial startup capital, funds used for growth, and working capital generally seek funds from internal sources. Managers or ...