Stages of Business Financing - MMR e

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Where do you get the $$$?
Stages of Business Financing
(fill in the blank note)
First Stage (conceptual)
 Consists of entrepreneur’s personal funds
 At this stage, expenses include research and the
development of a prototype
 Entrepreneurs obtain seed or shovel financing
from personal resources or from friends and
relatives.
Second stage (start- up stage)
 Entrepreneurs may have to seek outside funding
for the first time.
 This is called start-up or first-stage financing
Third Stage (stabilization stage)
 At this stage the company is starting to break-
even and beginning to realize the potential of the
product
 Financing
is required to secure/strengthen the
company’s position in the marketplace.
Fourth stage (growth Stage)
 Financing occurs here because the company is
ready to increase it’s capacity, introduce new
products and particulate in foreign markets.
SOURCES OF FUNDING:
 Personal
 Friends and relatives (this type of funding is called love money)
 Angels (informal investors who are prepared to risk capital in
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junior companies)
Potential customers
Silent and active partners
Government funding (the Federal Business Development Branch is
a federal agency whose mandate is to act as a lender of last resort
for Canadian business)
Banks
 A line of credit is usually used to provide working capital dayto-day business operations
 A term loan is usually used by a new business to purchase
LENDING CRITERIA (the four C’s)
 Capacity examines the business’s ability to attain projected
profits
 Collateral involves obtaining some kind of security against
the loan (for example: assets of the business)
 Character “refers to such information as the reputation of the
business and its owner, prior financial history and past credit
ratings
 Conditions “examines any external factors such as the
economy, marketplace, labour and competition. These
factors could have an effect on a business’s financial success
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