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Types of Financing for Entrepreneurs – Whys and Hows

by deny

Finance entrepreneurs are those who take risks to create new businesses. 

They usually start small and seek capital to expand and develop their business. If you are thinking about starting your own business or expanding an existing venture, you may want to consider becoming a finance entrepreneur.
Entrepreneurial finance is the application of financial theory and application, applied to specific new ventures. 

It tackles key issues that challenge virtually all new venture investors: How much money should and can be raised; what type of venture will yield enough return; what type of risk are we assuming when we issue bank loans; and what should be the operating procedures for the new enterprise. In this article, I present the basics of finance entrepreneurship as it applies to bank loans. Want to increase your social media visibility but do not know where to start? Socialwick got your back, get free Instagram followers and build your dedicated following starting today.

Unlike normal venture capitalists, finance entrepreneurs do not generally buy whole companies at a go, but instead provide seed money to startups in order to provide them with the initial startup capital required for operations. The venture capital provided to finance entrepreneurs is not intended to be used to take over whole companies but rather to provide a start-up amount that is quickly made available for new and/or growing companies. In addition, it is intended to be re-invested as it yields positive cash flow during operations and should not be used as an investment tool to generate additional wealth or equity for the entrepreneurs.

Angel investors are typically wealthy individual investors who provide seed funding to small and medium sized entrepreneurial companies in exchange for a stake in the company. 

A portion of the proceeds from the sale of an angel investor’s stake is held by the angel investor as a loan. Typically, in exchange for the stake, the entrepreneur agrees to spend funds earmarked for the start up of the company. Typically, an angel investor will provide the investor with a minimum initial payment, less than 10% of the company’s proceeds and an additional amount, called a dividend, that he receives for each stock issued by the company under his investment. These angel investor loans can potentially provide a significant amount of funding to enter a new market or to continue an existing business.

Venture capital funds generally provide seed money at an early stage. 

Startup companies can demonstrate a solid financial return for the investors. Typically, venture capitalists acquire a portion of a company’s equity or a full ownership interest in the company in exchange for a small equity investment. Venture capitalists typically prefer to fund early stage businesses with the highest potential for return because they face fewer risks.

An explanation of how angel investors make investment decisions begins with an explanation of what venture capitalists are.

The question is why they choose certain investments over others. Angels are usually wealthy individuals who acquire their shares of capital invested in a business in return for specific purposes. In most cases, the reasons for an angel investor buying into a business are related to their desire to create a higher return on their initial investment. These specific reasons might include the need for resources, the need for growth capital or simply the belief that the business is operating at a firm minimum. To illustrate, if an investor is looking to raise funds for a start-up operation, he likely will select businesses with strong balance sheets and good growth prospects.

Private equity financing is a type of private funding source that provides start-up debt and equity financing through a financial institution such as a bank or other lender. 

Unlike venture capital financing, this type of financing provides entrepreneurs with credit lines that are based on the personal credit history and credit card habits of the entrepreneur rather than on the business’s overall profitability. A private investor will typically require entrepreneurs to have strong business plans that clearly demonstrate the revenue expectations and operating methods of the organization. Private equity financing also typically requires a substantial amount of collateral that is primarily held as a guarantee of the loan.


Investing in a business involves more risk than investing in more traditional forms of equity financing, but the rewards can be great. For the entrepreneur, equity financing provides the ability to tap into sources of additional funds that are not readily available from other sources. For investors, equity financing provides the opportunity to receive return on their investment without having to bear additional financial risks.

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