Business Financing Options

Lesson Objectives

Describe why businesses might need to raise capital

Compare and contrast funding options available to businesses

Explain short-term and long-term funding

Key Vocabulary

401(k) financing504 loansAngel investorsAsset-based loansBank-term loansCommunity

Development Financial Institutions

Equipment leasingFederal government

venture capital

Initial public offeringInstitutional venture

capitalLong-term financingMicroloansPrivate loan

guaranteesRoyalty FinancingSBA guaranteed loansShort-term financing

Understanding Sources of Business Capital

Think about your life from today to old age. Imagine your family, your job, your hobbies—try to think of everything you plan to do. What are the events in your life that you will need money for? Think major purchases not so much food or gas

Understanding Sources of Business Capital

The business life cycle Start-up Growth Maturity Decline

Which phases need the most money? Starting the business Expanding (growing) the business Maintaining the business during difficult times

Exploring Business Financing Options

Work in pairs to explore possible ways businesses can secure capital

Business Financing Options

Startup financingEquipment leasingCommunity

development financial institutions (CDFIs)

MicroloansAsset-based loansBank-term loansSBA-guaranteed loansPrivate loan

guarantees

504 loansRoyalty financingFederal government

venture capitalAngel investorsInitial public offerings

(stock issuing)Institutional venture

capital

Business Financing Options

Download- Matrix- Business Financing Options This information will be transferred to a poster to

present to the class http://www.entrepreneur.com/howto/raisemoney/i

ndex.html

Completion of the Poster

Download- Assignment: Business Financing Options Poster

Download- Example: Business Financing Poster In what ways does and doesn’t this example meet the

assessment criteria for the assignment?

Sharing Business Financing Options

Download- Matrix: Gallery Walk of Financing Options Complete this individually by walking around and

observing your classmate’s posters

Financing Time Frames

Financing options can also be categorized by time frame: those that help businesses in a pinch providing financing to fund relatively short-term

needs others that provide long-term funding solutions

Financing Time Frames

Short-term financing usually applies to money needed for the daily operations of the business. For example, this might be purchasing supplies or

seasonal inventory or paying the wages of employees. The repayment for short-term loans is generally less than 1 year.

Long-term financing usually applies to assets the business is purchasing, such as equipment, buildings, or land. The scheduled repayment for long-term financing

extends over more than 1 year, with most being between 3 and 10 years.

Group Work

Download- Worksheet: Exit SlipOne interesting fact about the particular

business financing option that I researched was…

I contributed to the overall completion of the activity by…

Group Work

The type of financing that is best suited for a particular business is an important consideration when seeking capital

Understanding the costs of each option as well as the situations for which a given funding option is appropriate is critical to the financial health of any business

Enrichment

Research derivatives and the effect they had on the financial meltdown in the late 2000s. Work in pairs and develop two lists: one with facts suggesting that derivatives caused the financial crisis, and one with facts suggesting they did not. We will perform a debate when complete.

Enrichment

Write a summary explaining how an individual’s personal credit history can impact the availability of different financing options.

Cross-Curricular Integration

Have students imagine that they are entrepreneurs seeking financing for a new business. Have them write a short essay in which they showcase their business idea and explain their capital needs. Refer to www.raisecapital.com and review actual business ideas for examples. Once the class has written text descriptions of their business venture have students exchange papers and write a response from the point of view of an angel investor. As an angel investor, they must decide whether or not they would like to help finance the particular business idea. In order for students to accurately write from the point of view of an angel investor, students may need to research angel investors to understand who they are and their purpose.