TAILIEUCHUNG - Frequently Asked Questions about Small Business Finance

I have, for simplicity, concentrated on the special case of the corporate executive, except only for the brief digression on trade unions. But precisely the same argument applies to the newer phenomenon of calling upon stockholders to require corporations to exercise social responsibility (the recent . crusade, for example). In most of these cases, what is in effect involved is some stockholders trying to get other stockholders (or customers or employees) to contribute against their will to "social" causes favored by activists. Insofar as they succeed, they are again imposing taxes and spending the proceeds. The situation of the. | Office of Advocacy Advocacy the voice of small business in government Frequently Asked Questions about Small Business Finance This document sketches the ecosystem or life-cycle of small business financing. The FAQ format allows users to browse through topics and learn about specific issues. Small businesses which include startups in such sectors as information technology service retail and manufacturing have varying financial needs. The answers provided here represent averages or totals that can be used as figures and trends for differing types of firms. For further small business data and research information visit the Office of Advocacy s website at advocacy General small business finance What are the main reasons small businesses seek financing Small businesses borrow for four principal reasons for starting the business purchasing inventory expanding the business and strengthening the financials of the firm. Firms choose different means of financing depending on the intended purpose. 1. The data sources cited here tend to differ widely probably because of the differing subgroups of businesses that they cover. For instance data from the Census Bureau s Survey of Business Owners reflects all businesses while data from D B reflects a smaller pool dominated by older and larger businesses. This can make this FAQ seem choppy and at times inconsistent. The bottom line is that there is often no perfect data source for many of the questions. What types of funding do entrepreneurs and small firms use to finance their ventures Financing falls into two categories debt and equity. Table 1 shows the sources and types of financing available to entrepreneurs. Some of these sources are unusual or unconventional. In addition when a small business obtains a government procurement contract it can play Table 1. Types of Capital by Source Category Source Type Debt Owner s Institutional lenders banks and other depository institutions nondepository institutions mutual

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