Question

______ provide a lender resources to all the personal assets of the entrepreneur

Answer 1

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Types and Sources of Financing for Start-up Businesses

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Financing is needed to start a business and ramp it up to profitability. There are several sources to consider when looking for start-up financing. But first you need to consider how much money you need and when you will need it.

The financial needs of a business will vary according to the type and size of the business. For example, processing businesses are usually capital intensive, requiring large amounts of capital. Retail businesses usually require less capital.

Debt and equity are the two major sources of financing. Government grants to finance certain aspects of a business may be an option. Also, incentives may be available to locate in certain communities and/or encourage activities in particular industries.

Equity Financing

Equity financing means exchanging a portion of the ownership of the business for a financial investment in the business. The ownership stake resulting from an equity investment allows the investor to share in the company’s profits. Equity involves a permanent investment in a company and is not repaid by the company at a later date.

The investment should be properly defined in a formally created business entity. An equity stake in a company can be in the form of membership units, as in the case of a limited liability company or in the form of common or preferred stock as in a corporation.

Answer 2

Collateral provide a lender resources to all the personal assets of the entrepreneur

• When an independent entrepreneur typically offers a personal guarantee to a corporation, it properly expresses a legitimate claim on all the entrepreneur's personal properties.  
• In the notable event of any default in the loan repayment, it provides the potential lender with direct access to all the entrepreneur's personal properties.  
• However, the outside collateral is still limited to the particular asset mutually pledged.