1. CHAPTER 13 DISCUSSION QUESTIONS
1) Explain the difference & the advantages/disadvantages of
equity capital & debt capital.
2) Discuss the following sources of equity capital:
A) Angels
B) Corporate Venture Capital
C) Venture Capital Companies
3) Explain the following federal loan programs aimed at small
businesses:
A) EDA
B) HUD
C) USDA
D) SBIR
E) STTR

2. CAPITAL
-”ANY FORM OF WEALTH EMPLOYED TO PRODUCE MORE
WEALTH.”
-3 MAIN FORMS
6) CASH
7) INVENTORY
8) EQUIPMENT

3. ENTREPRENEURS NEED 3 DIFFERENT TYPES OF CAPITAL
4) FIXED CAPITAL
5) WORKING CAPITAL
6) GROWTH CAPITAL

4. 1) FIXED CAPITAL
-”CAPITAL NEEDED TO PURCHASE A COMPANY’S
PERMANENT OR FIXED ASSETS.”
-MAIN TYPES OF PERMANENT/FIXED ASSETS:
1) LAND
2) BUILDINGS
3) EQUIPMENT
-MONEY INVESTED IN FIXED ASSETS TENDS TO BE
FROZEN BECAUSE IT CANNOT BE USED FOR ANY OTHER
PURPOSE.

5. 2) WORKING CAPITAL
-”CAPITAL NEEDED TO SUPPORT A COMPANY’S SHORT-
TERM OPERATIONS.”
-CURRENT ASSETS MINUS CURRENT LIABILITIES.
-WORKING CAPITAL IS NORMALLY USED TO:
6) BUY INVENTORY.
7) PAY BILLS.
8) FINANCE CREDIT SALES.
9) PAY WAGES & SALARIES.
10)TAKE CARE OF UNEXPECTED EMERGENCIES.

6. 3) GROWTH CAPITAL
-”CAPITAL NEEDED TO FINANCE A COMPANY’S GROWTH
OR EXPANSION IN A NEW DIRECTION.”
-GROWTH CAPITAL FINANCES:
• EXPANSION OR PURCHASING NEW BUILDINGS
• HIRING ADDITIONAL WORK FORCE
• INCREASING INVENTORY

7. EQUITY CAPITAL VS DEBT CAPITAL
FINANCING THE CAPITAL REQUIREMENTS OF A START-UP
BUSINESS

8. DEBT CAPITAL
-”THE FINANCING THAT A SMALL BUSINESS OWNER HAS
BORROWED & MUST REPAY.”
-FEW ENTREPRENEURS HAVE ENOUGH SAVINGS TO
COVER START-UP COSTS, SO THEY MUST RELY ON SOME
FORM OF DEBT CAPITAL TO LAUNCH THEIR COMPANIES.
•PRIMARY ADVANTAGE:
-ENTREPRENEURS KEEP TOTAL OWNERSHIP & CONTROL
OF BUSINESS.
•PRIMARY DISADVANTAGE:
-SMALL BUSINESS LOANS ARE DIFFICULT TO OBTAIN.

9. EQUITY CAPITAL
-”CAPITAL THAT REPRESENTS THE PERSONAL INVESTMENT OF
THE OWNER(S) OF A COMPANY.
-SOMETIMES CALLED RISK CAPITAL.
-PRIMARY ADVANTAGE:
•DOES NOT HAVE TO BE PAID BACK LIKE A LOAN DOES.
-EQUITY INVESTORS ARE ENTITLED TO SHARE IN THE
COMPANY’S EARNINGS & USUALLY HAVE A VOICE IN THE
COMPANY’S FUTURE DIRECTION.
-PRIMARY DISADVANTAGE:
•THE ENTREPRENEUR MUST GIVE UP SOME, SOMETIMES MOST,
OF THE OWNERSHIP IN THE BUSINESS TO OUTSIDERS.
-GIVING UP CONTROL OF A COMPANY FOR AN ENTREPRENEUR
IS AN OXYMORON.

10. SOURCES OF EQUITY FINANCING

11. ANGELS
-”WEALTHY INDIVIDUALS WHO INVEST IN BUSINESS
START-UPS IN EXCHANGE EQUITY STAKES IN THE
COMPANIES.”
-TODAY, THE LARGEST SOURCE OF EXTERNAL FINANCING
FOR COMPANIES IN THE START-UP PHASES.

12. VENTURE CAPITAL
-”FUNDS MADE AVAILABLE FOR STARTUP FIRMS WITH
EXCEPTIONAL GROWTH POTENTIAL.”
CORPORATE VENTURE CAPITAL
-LARGE CORPORATIONS THAT INVEST IN FLEDGLING
COMPANIES, MOST OFTEN THOSE IN THE PRODUCT
DEVELOPMENT & SALES GROWTH STAGES.
VENTURE CAPITAL COMPANIES
-PRIVATE, FOR-PROFIT COMPANIES THAT PURCHASE
EQUITY POSITIONS IN YOUNG BUSINESSES THEY BELIEVE
HAVE HIGH-GROWTH & HIGH-PROFIT POTENTIAL.

13. THE BOSTON BEER COMPANY: BREWING THE AMERICAN DREAM
•Small business loans from $500-$25,000: Food and beverage small business owners can
get the capital needed to expand or start a business, purchase inventory or equipment,
market a business, pay licensing fees, etc.
•Financial and business education seminars: Through free seminars, The Boston Beer
Company gives top-line guidance, answers questions and helps solve small business
challenges.
•Speed coaching events: Small business owners can meet with The Boston Beer
Company's employees to gain customized business advice on a range of topics:
marketing, distribution, accounting, etc.

14. FEDERAL LOAN PROGRAMS

15. ECONOMIC DEVELOPMENT ADMINISTRATION (EDA)
-A BRANCH OF THE COMMERCE DEPARTMENT, THAT
OFFERS LOAN GUARANTEES TO CREATE NEW BUSINESS
& TO EXPAND EXISTING BUSINESSES IN IN AREAS WITH
BELOW-AVERAGE INCOME & HIGH UNEMPLOYMENT.

16. DEPARTMENT OF HOUSING & URBAN DEVELOPMENT (HUD)
-SPONSORS LOAN PROGRAMS TO ASSIST QUALIFIED
ENTREPRENEURS TO START SMALL BUSINESSES THAT
WILL STRENGTHEN THE LOCAL ECONOMY .
-GRANTS ARE AIMED AT CITIES & TOWNS IN NEED OF
REVITALIZATION & ECONOMIC STIMULATION.

17. RURAL BUSINESS-COOPERATIVE SERVICE (RBS)
-PROVIDED BY THE U.S. DEPARTMENT OF AGRICULTURE.
-A FINANCIAL ASSISTANCE PROGRAM OPEN TO ALL
TYPES OF BUSINESSES DESIGNED TO CREATE NONFARM
EMPLOYMENT OPPORTUNITIES IN RURAL AREAS.

18. SMALL BUSINESS INNOVATION RESEARCH PROGRAM (SBIR)
-A PROGRAM OF 11 FEDERAL AGENCIES
THAT AWARD CASH GRANTS OR LONG-
TERM CONTRACTS TO COMPANIES
WANTING TO INITIATE OR TO EXPAND THEIR
RESEARCH & DEVELOPMENT EFFORTS.
-SBIR GRANTS GIVE INNOVATIVE SMALL
COMPANIES THE OPPORTUNITY TO
ATTRACT EARLY-STAGE CAPITAL
INVESTMENTS WITHOUT HAVING TO GIVE
UP SIGNIFICANT EQUITY STAKES OR
TAKING ON BURDENSOME LEVELS OF
DEBT.

19. SMALL BUSINESS TECHNOLOGY TRANSFER PROGRAM (STTR)
-USES COMPANIES TO EXPLOIT THE VAST RESERVOIR OF
COMERCIALLY PROMISING IDEAS THAT ORIGINATE IN UNIVERSITIES,
FEDERALLY FUNDED R&D CENTERS, & NONPROFIT RESEARCH
INSTITUTIONS.