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i I I I I I I I I I I DH~S Review 8~1 ~2 June 10 1985 Personal Business Thoughts Financing the small and growing business Small businesses.often grow at dynamic rates. However, this can re- sult in temporary cash shortfalls, and the entrepeneur's ability to obtain necessary capital to overcome this situation has been one of the stumbling blocks for many small businesses. This article discusses various sources of financing for the small and growing business, and the applicability of dif- ferent financing sources to particular situations. Before seeking outside financing, it is important to identify the stage of the company's life cycle because this can help to determine what type of financing-debt or equity-is most appropriate for that stage. As the table be- Iow illustrates, there are myriad financing alternatives available for each. Selected Financing Alternatives for Various Stages Of a Company's Life Cycle Life Cycle Stage Financing Source Debt: Individual investors P P F F Commercial banks F P P P F Small Business Administration F P P F Finance companies F P F P Equity: Venture capitalists F P P P Small Business Investment Companies F P P P F Public offerings F F P P F Employee Stock Ownership Plans F P F Legend: P=Prime financing source; F=Feasible financing source Seed funds are the primary source of initial capital. This source norm- ally consists of personal wealth and financing from friends and relatives. These funds are rarely enough to carry the business past the initial stage, however, and people who provide seed money are usually not in the position to provide additional funds. Commercial banks have long been the cornerstone of lending for small and growing businesses. Although they may grant loans on either an unse- cured or secured basis, much of the lending is done on a secured basis since small businesses usually don't have a financial track record. The Small Business Administration (SBA) has been the major source of government financing. By law, however, the SBA cannot make a loan if the business can obtain financing from another source. The SBA guarantees intermediate- and long-term bank loans and makes a limited number of