Business and Personal Finance © 2007Chapter 19:
Sources of FundingS&P's Financial FocusSources of FinancingSometimes even successful businesses have to borrow money. When a businessperson borrows money that must be repaid with interest, it is called debt financing. The money raised through the loans is called debt capital. Make a Wall Poster Use the following information to make a chart of places where businesses receive credit. - Banks Conservative in loaning money, banks usually only loan money to already-established businesses with a successful track record.
- Line of Credit Available through banking institutions, a line of credit is an arrangement whereby a lender agrees to lend up to a specific amount of money at a certain interest rate for a specific period of time.
- Trade Credit This is a source of short-term financing for goods or services from suppliers to the companies they sell to.
- Minority Enterprise Development Programs Businesses that are at least 51 percent minority owned, or 51 percent owned by a female or a disabled person, may qualify for funding, which is provided by the private sector and the Small Business Administration.
- Commercial Finance Companies These companies offer more expensive loans than banks, but will provide money to higher-risk businesses.
- SBA Loan The Small Business Administration approves and guarantees your loan, and then uses commercial banks to process and release money to you.
- Small Business Investment Companies (SBICs) Privately managed venture capital companies, SBICs match funding with government-provided funding.
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