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APA
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Business & Marketing
Type:
Term Paper
Language:
English (U.S.)
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Topic:

Sources of Capital for Entrepreneurs

Term Paper Instructions:

1. please follow the instructions on the attachment.

2. please do not use difficult work.

For your term paper, you are to choose from one of the topics that we will discuss in this course:1. Social Entrepreneurship
2 Sources of Capital for Entrepreneurs
3. Pathways to Entrepreneurial Ventures
4. The Creative Pursuit of Ideas
5. Strategic Entrepreneurial Growth
6. Assessment of Entrepreneurial Opportunities
On the topic you choose you are required to research and present how that topic is has been addressed by entrepreneurs or entrepreneurial firms. Your presentation must be framed in terms of the documented source material.
You are expected to define the topic, highlight the history or background of the key issues and challenges surrounding the topic, then and provide examples of specific entrepreneurs or entrepreneurial firms and how they handled this topic.

Lastly you should include your own recommendations on how your feel the topic should be addressed in the future.
You must cite all your sources using APA format (in-text and in a Works Cited section). Any plagiarism will result in an automatic grade of ZERO.
Your paper must be 8 pages long, not including any title page or Works Cited page. It must be double spaced, with 1-inch margins on all sides, using a 12-pt. font.

Term Paper Sample Content Preview:

Sources of Capital for Entrepreneurs
Student’s Name
Institution
Date
Introduction
As highlighted by Stevenson (2006), entrepreneurship as a concept was initially utilized in the eighteenth century and has been dissected in numerous times by various academic scholars. One of them, Richard Cantillon, asserted that entrepreneurship is the process of buying a commodity at a particular price then selling that commodity at an unknown price. Jean Baptiste further emphasized on this definition by introducing the idea of acquiring all the necessary production factors (Stevenson, 2006).
Schumpeter another scholar, introduced the concept of innovation as it is critical in entrepreneurship in 1911. Through innovation, he asserted that innovation applies to the manner that the individual utilizes the market, the company itself and their product to their advantage. Entrepreneurship, therefore, refers to a process that involves change, invention, and creation and also the innovation required to implement the best strategies towards the success of an organization. Hirich, Peters & Shepherd, (2010) indicated that when starting an entrepreneurial venture, the most complicated issue is obtaining adequate financing.
When seeking financing for their business venture, entrepreneurs mainly rely on various capital sources. Typically capital sources are divided into debt or equity capital sources and internal or external capital sources.
The latter includes personal funds and families and loans from financial institutions. Between these specific banks, there are some that do not intend on investing in a business venture that has numerous issues or their families and friends heavily finance the young company. Therefore, the three primary financial resources that young enterprises seek for capital include venture capitalist firms, business angel and corporate venture capitalists. The paper analyzes the various strategies an entrepreneur can utilize in gaining financial resources to initiate and develop their ventures.
Analysis
Sources of capital for entrepreneurs
Debt Financing
Hisrisch et al. (2010) highlighted that debt financing is the process of gaining funds for the company by borrowing other financial institutions and then paying the debt owed with an additional fee. The primary debt sources include:
Commercial Banks
This financial enterprise is the central source of short term funds for numerous young companies that can provide any available collateral. Such funds are also provided to entrepreneurs that have a guarantor or tangible collateral. This collateral must typically be in the form of personal assets of the entrepreneurs such as a land, car or business assets that include the premises of the specific venture (Hisrich et al., 2010). The primary element in acquiring funds from a commercial bank is the collateral of the entrepreneur which must be worth more than the funds being borrowed from the bank.
Trade Credit Financing
Such financing involves the buying of supplies which is done by the customer on the basis of the account whereby, the client then pays the supplier at a later period. Typically, these periods range from one month to three months (Investopedia, 2013). Any extension on the payment day is another approach that the client utilizes to sell all the goods then, later on, pay the debt back to the enterprise.
Account Receivable Financing
Account receivable type of financing is whereby the entrepreneur gains the necessary funds by selling goods or services on credit to the creditworthy clients and then seek for the payment owned at a later period. In some instances especially when there is government involvement, the entrepreneur can get an account receivable from a bank through selling the accounts receivable they have at a lower value than the actual face value (Stevenson & Jarillo, 1999). In such a situation, the bank can collect the funds from the entrepreneurs account and in the event that there is a loss or the failure of the financial institution from collecting the accounts receivables, then the bank incurs the consequent loss and not the young venture.
Factoring Financing
Most ongoing enterprises utilize this type of financing to acquire capital. During the factoring process, the account receivables are purchased by a third party and they also become entitled to collect any subsequent funds. This is critical especially in instance whereby the young enterprise cannot acquire a loan through this approach. The process which is similar to account receivable financing is done based on selling accounts at a lower value than its actual market price (Investopedia, 2013).
Cash Flow Financing
Cash flow financing is a source of debt financing that financial institutions provide to young companies. Hisrich et al. (2010) asserted that the most common ways for young companies to be provided with capital by financial entities are mainly through the typical bank loans. Such conventional loans cover character loans, straight commercial loans, installment laws, long term loans and credit financing. These loans will be analyzed further below:
* Installment Loans: These loans can be provided to only an entrepreneur that has a pristine record of profits and sales. These loans are usually spent during seasonal financing periods mainly on the working capital needs of an enterprise. The duration of this loan is as long as one month to forty days (Greathouse, 2012).
* Straight Commercial Loans: These self-liquidating loans are highly similar to installment loans and are also utilized for a particular period such as during seasonal financing and also for the provision of inventory that directly goes to the company or one month to ninety days.
* Long Term Loans: These loans are commonly available for only large and mature enterprises that can last up to a decade. The incurred debt to the enterprise is typically repaid based on a fixed interest rate and a particular and constant schedule. In some instances, the payment schedule begins from the second or third year of the loan with any occurred profit only during the first year.
* Character Loans: These loans are utilized when the venture does not have the necessary assets that would support the loan. Therefore to acquire the loan, the entrepreneur requires another person’s assistance to get the loan. Here, the entrepreneur or the other person’s assets must be pledged in the financial institution as collateral to get the loan. These pledged assets are mainly land, cars, and houses.
Equity Financing
Equity financing involves the process of acquiring funds for the enterprise in exchange for ownership. Equity financing has been highly popularized as numerous articles in mainstream media have glamorized the concept of selling stocks for a start-up company. Here, various entrepreneurs focus on raising money through equity rather than debt. This is highly appealing since it feels for the entrepreneur as free money at the start-up (Stevenson, 2006). Additionally, it is not necessary for collateral and typically no obligation to interest payment or repayment. Here, there are more advantages of utilizing equity funding since this includes having the business experiences and lessons of the equity investors, h...
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