Finding Solutions for Growing Businesses

COMMERCIAL LOANS

SOURCES OF FINANCING
You have a number of alternatives available to you for business financing. Some of these alternatives are lenders ("debt financing"); others are investors who will own a part of your business to a greater or lesser extent ('equity financing"). These two sources have different advantages and disadvantages. Some sources offer one of these types of financing, some other both. Carefully consider your options when examining your financial needs. The following is an overview of the most common sources of financing.

BANKS, SAVINGS and LOANS and OTHER FINANCIAL INSTITUTIONS

The majority of business financing is done by commercial banks and similar institutions. These institutions provide debt financing. They use their depositors' money to make these loans, and must repay their depositors. They are therefore, generally limited to lower-risk loans.

COMMUNITY DEVELOPMENT CORPORATIONS (CDC's)

CDC's are wholly owned subsidiaries of one or more banks. They provide debt or equity financing for a variety of purposes, such as housing projects and small businesses. The financing is generally done with the assistance of a community organization.

VENTURE CAPITALISTS

Venture capitalists provide equity financing; they invest in your business and will become co-owners with you. They will frequently take an active part in the management in your company. They may even ask for a controlling interest in your business. Venture capitalists look for a high return on their investment (generally several hundred percent) over a relatively short time period (usually three to five years). After this period of time they expect their interest in your business to be purchased by you or other investors. Minimum investments vary, but are typically in the $500,000 to $1,000,000 range.

SEED CAPITAL FUNDS

Seed capital funds are private venture capital firms specifically targeted to small business start-ups. As such, their minimum investments are desired rate of return are generally significantly lower than those of traditional venture capitalists.

BUSINESS and INDUSTRIAL DEVELOPMENT CORPORATIONS (BIDCOs)

BIDCOs are designed to fill the gap between banks (low-risk lenders) and venture capitalists (high-risk lenders). They are private firms which can provide either debt or equity financing.

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