Q Financing the Small Business As mentioned earlier, many entrepreneurs finance their business by using their own personal savings and assets. Some borrow from friends and family and others may receive grants from the government. Beyond these methods, entrepreneurs generally have two sources of funding: debt and equity. Equity Financing Equity financing involves raising funds by promising investors a share of future profits and an ownership stake in the business. Venture capital is money that is invested in small (and sometimes struggling) firms that have the potential to become successful. Organizations that invest venture capital expect their investments to grow with the firm. Small businesses may also seek angel investors—individuals who invest money in exchange for ownership in the company. While venture capital investing has increased in recent years, businesses owned by women and people of color struggle to obtain venture capital. In an effort to help, the Small Business Administration (SBA) licenses, regulates, and provides financial assistance to small-business investment companies (SBICs) which are privately owned firms that provide venture capital to small enterprises that meet its investment standards. Debt Financing Debt financing requires the entrepreneur to repay the invested amount at a later date. The most common form of debt financing is a business loan from a bank or other financial institution. But banks are often hesitant to loan money to a new business with no track record of success. Entrepreneurs may choose credit cards or use short-term sources of debt such as lines of credit from banks and trade credit from suppliers. Crowdfunding Crowdfunding is a relatively new source of financing. In crowdfunding, entrepreneurs share descriptions of their business online and invite people to contribute. Contributors may receive a reward based on their contribution level, or some sites work more like loans (debt financing) and some work like venture capitalists, with investors getting a share for their investment (equity financing). 1.With ________ , the entrepreneur repays the invested amount at a later date; with ________ , the entrepreneur is promising investors a share of future profits and an ownership stake in the business. 2.Which of the following is not a source of equity financing? 3.Small business investment companies (SBICs) are regulated by ________.

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