Common Purposes for Financing and Their Sources

The purpose of the investment drives the type and source of the investment. The need for start-up cash is different from the frantic rush to meet payroll or making a calm decision to expand into a new market. Some of the more common purposes for financing and their sources include the following:

• Starting a business: Equity from the owner, investment from three Fs (friends, family, and fools) or perhaps an outside investor, loans drom the Small Business Administration (SBA) and other government agencies, credit cards, payout from an early retirement.
  
• Aquiring Inventory: Cash from operations, terms, and dating from suppliers.
  
• Purchasing Equipment: A loan from an equipment manufacturer or bank, payment made to a credit card or finance company; or a business owner may decide to lease instead of purchase.
  
• Expanding a business: Cash from cash flow and operating profits, new equity, a medium to long term bank loan to be repaid from profit, risk capital, proceeds from retirement funds (under some circumtances).
  
• Acquiring another business: Funding from direct investment, a bank loan, cash flow of the acquired entity, seller financing.
  
• Paying normal business bills: Cash from operations secured credit from a bank, warehouse financing, or funds from a factor of finance company.
  
• Increasing working capital: Stretching payables, funds from new equity, a long-term bank loan, or operating profits.
  
• Meeting unexpected personal financial needs of owner: Personal savings, personal loans, credit cards, a loan from the business, a salary advance.
  
• Acquiring fices assets: Funds from a mortgage, a long-term debt, seller financing.
  
• Unanticipated disaster: Proceeds from an insurance policy, retained earnings, owner's assets.