Please enable JavaScript.
Coggle requires JavaScript to display documents.
Debt and Equity financing - Coggle Diagram
Debt and Equity financing
Debt Financing
Is a method of obtaining money that you need and the company´s debts will increase. There are three main sources of debt financing:
Bank:
The major source of debt financing for an entrepreneur is a bank. The money the bank give you can be used to start or to grow your business. Banks are very careful with their loans, they will get their money back, with interest.
You need a Co-signer who will sign a loan agreement to guarantee the loan payments
Relatives and friends:
The start-up capital for many businesses has come as a loan from the
entrepreneur’s relatives or friends. However, the major concern will be to earn enough revenue to pay back the loans.
The confidence they would have in you and your business venture is often worth the risk.
Credit Unions:
A credit union is a nonprofit cooperative organization that offers low-interest loans to members. Credit unions may offer you lower interest rates than banks because you must first join the credit union. If you do not meet the membership requirements, you cannot get the loan.
You also need a Co-signer who will sign a loan agreement to guarantee the loan payments
Equity Financing
The other primary method of financing a start-up business is to sell
shares of ownership in the business.
There are three main sources of equity financing:
Relative and Friends:
This is much the same as borrowing money from relatives and friends
but with one difference.
Your relatives now own part of the business.
Angel Investor:
Is an investor who is interested in financing start-up ventures. Like any investor,an angel wants to make a profit.
Sometimes an angel will often accept a lower, they don’t make loans. Angels receive many requests for their capital but fund only a small percentage of business ventures. Its difficult to find one.
Venture Capital:
Another source of equity financing, similar to angel investment. Venture capital is money that is invested in a potentially profitable business by a specialized company whose purpose is to invest in start-ups.
Venture capitalists are only interested in equity financing.
They expect large profits,
then a high risk is involved.
Partners:
The most common source of equity financing is giving a percentage
of the ownership of a business to a partner.
Partners are typically liable for business, including paying debts
or damages. If your partner incurs a debt on behalf of the partnership,you will be jointly responsible for paying it.
Other sources:
Goverment funds, Crowdfunding and Private startup programs.
