Sources of Funds

• Sources of Funds


  Financing options available to businesses to fund their operations and growth
• Entrepreneurs usually start small scale. Once they decide to expand their business, they need additional funds.
• If they cannot raise their own funds, looking for other sources is a good option to make the business grow bigger.
• Most businesses have been successful in expanding by using the available sources of funds in the business industry.
• Getting familiar with different financing institutions and sources is important for startups.
• Debt Financing

  When the company borrows money from an outside source and pays it back with interest at a future date
• Equity Financing


  When the investors or financing institutions put money or assets into the business in exchange for part ownership of the company
• Debt


  The amount of money borrowed by one party from another which needs to be repaid back
• Debt Financing


  • Can be obtained from different source
• Family and Friends (Love Money)


  Ideal for startups who lack credentials, comes from family and friends who believe in the capacity to succeed, terms of payment depends on agreement
• Nonbank Financial Institutions


  Do not possess a comprehensive banking license, cannot accept deposits from the public, can manage other banking activities like investment, brokering, financial consulting, lending, risk pooling, money transmission, etc.
• Private Nonbank Financial Institutions


  • Provide short-term and long-term financing, typically offer loan services such as accounts receivable financing, equipment loan, risk pooling (insurance), venture capital financing, pawning, and debentures
• Private Nonbank Thrift Institutions


  • Mutual Building and Loan Association (MBLA), Non-stock Saving and Loan Association
• Government Nonbank Financial Institutions (GNBFI)


  • Government Service Insurance System (GSIS), Social Security System (SSS), Home Development Mutual Fund (HDMF) or PAG-IBIG Fund
• Equity


  Means being equal or fair, in business it means ownership or right
• Equity Financing


  Selling shares of the business to meet liquidity needs, investors in return will have shares in the business
• Angel Investors


  High-net-worth investors who support small investors especially in the early stages, willing to give their knowledge and experiences in the business to make it grow
• Venture Capitalists


  Provide well-off investors to startup small businesses that have long-term growth potential, can be debt financing or equity financing
• Bootstrapping


  Highly dependent on internal sources, used by businesses that lack experience in business planning, promotion, and relationship with other businesses
• Crowdfunding


  Typically conducted through an online platform or application
• Crowdfunding Types


  • Donation-based, Reward-based, Lending-based, Equity-based
• Corporate Investor


  A company that invests in other companies or businesses in exchange for part ownership and control of the business
• Initial Public Offering (IPO)


  A means to raise capital that can be used for expenditures, expansion, debt payments, trading participants
• Most businesses start small; but through financing, they are able to grow and expand into big and successful corporations.
• For business start ups, it is important to recognize the two main sources of funds for businesses: debt financing and equity financing.
• Debt Financing


  A secured or unsecured loan in which a party borrows money from another party to be paid back with interest at a later date. The periodic payments could be monthly, bimonthly, quarterly, semi-annually, yearly, or towards the end of the loan tenure.
• Equity Financing


  A technique of putting up funds by selling shares of the business to public investors or financial institutions in exchange for cash to meet the liquidity needs of the business.
• Firms can choose between short-term and long-term loans, depending on their business needs, capacity, and financial plan. Moreover, they can choose whether a secure or unsecured loan is best suited for them.