Start-up businesses and long-established firms share common ground in at least one respect: the need for financing. Managers of fledgling companies often debate the best way to obtain funds for buying inventory, heavy equipment, and buildings for making widgets. In the break rooms and suites of Fortune 500 firms, executives also discuss the best ways to cover cash shortfalls and meet capital needs.
Business financing generally comes in two flavors: equity and debt. For small businesses, equity financing often takes the form of contributions by family members, friends, business associates, and investors. For business owners, the biggest drawback to equity financing is loss of control. If Uncle John pumps his savings into your newly formed company, he may want a substantial voice in its day-to-day operations, whether or not he understands your industry or business model. On the plus side, equity contributions may be easier to procure than bank loans or other forms of financing. [Read more…]