What happens when your paychecks stop? I am no longer employed. Perhaps this is the time for me to pursue self-employment! Starting a small business in this tough economy won’t be easy. But after experiencing workplace bullying, the most devastating experience any employee can be subjected to, I am willing to consider the risks. Bhide (1999) found in his research “most startups derive from individuals seeking self-employment rather than the conduct of an entrepreneurial effort to develop new products, markets, technologies, and so on” (p. 19).
Starting a business involves planning, making key financial decisions, and completing a series of legal activities. In order to obtain start-up financing, an entrepreneur has to convince investors that the enterprise has intangible assets that have potential to generate cash flows in the future. In addition, he or she must convince potential lenders and investors the business idea is promising, the market accessible, the firm’s management capable, and the return on investment attractive. To accomplish these objectives, the entrepreneur should develop a business plan. In addition to a plan, the lenders still assess the 5 C’s of credit: Character (integrity), Capacity (sufficient cash flow), Capital (net worth), Collateral (assets) and Condition (of the borrower and the overall economy) (Chase Business Banking, 2012). The SBA and its lender will look at your character and your capacity.
There are a number of approaches that entrepreneurs can take to secure adequate financing, seed capital, for their business ventures (Laszlo, Terjesen, & Rappai, 2007). Investments break down into two forms: debt and equity (Business Networks for Women, 2011). Debt financing is the type of financing, which means that you have "debt" -- money that you owe to someone. The person who lends you money does not have any liberties or ownership over your business. Your relationship continues as long as you owe the money, and once it is paid back, your relationship with the lender ends. Debt financing can be short or long term. This type of financing can be personal savings, family and friends, banks, government guaranteed loans such as the Small Business Administration, and offices of economic development. The advantages to debt financing include control over the destiny of the business, own all the profit, and the interest on debt financing is tax deductible. The disadvantages to debt financing are too much debt can cause problems. If you begin to rely on it, and do not have the revenue to pay it back, it will make you unattractive to investors who will view you as "high risk."
Equity financing is the type of financing in which there is an exchange of money from a lender for a piece of ownership in the business. This type of financing normally occurs with venture capitalists and angel investors. Venture capitalists are mostly interested in companies that have a solid track record and are expected to grow. ...