Page 90 - Azerbaijan State University of Economics

Ali Y. Abbasov: Modern Venture financing options in the U.S.A.

Prior to seeking financing, the entrepreneur must formulate a solid case to attract the attention

and establish the trust of those who have the cash (Mullen, 2012). There should be sufficient

collateral available to secure loans, or owner infused equity to indicate the entrepreneur’s level of

commitment. The plan should well thought out and forecast cash requirements and repayments

without being too rosy when projecting cash receipts generated through sales. The timing of capital

sourcing is also critical. The entrepreneur should not seek funding when cash is already depleted;

this shows poor planning on the part of the owner, and creates doubt in the mind of the financier

(Sherman, 2012). When creating a plan, the benefits and impediments must be carefully analyzed to

ensure the entrepreneur gains the greatest advantage from the capital source.

One of the primary intrinsic benefits of owning a business is having control over all the

decisions and management of the business and seeing the venture succeed. For this reason,

many entrepreneurs will seek financing in the form of a business loan as it allows the owner to

retain full control over the business (Sherman, 2012). Other advantages of using bank financing

are that the terms can be flexible to suite business needs by structuring notes to be short, medium

or long term, and cash outlays are straight forward and easy to budget (Mullen, 2012). Another

primary advantage is that interest payments are typically lower and have the added benefit of

being tax deductible. Downsides to borrowing include loan prepayment penalties, un-flexible

payment schedules which don’t mesh well with cyclical cash cycles, and collateral requirements

(Mullen, 2012); all of which increase the risk of the business owner. Because of collateral

requirements, companies which focus on production of tangible assets, with reduced managerial

discretion and flexibility are better suited to take on a business loan (Brewer III & Genay, 1996).

For entrepreneurs that require more flexibility and time, and don’t mind sharing the

spoils, venture capital sources may be the better alternative. Benefits of tapping into VC include

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