Most of us, when we start a business, are skilled in the basic discipline of that business rather than the business of finance, and like most established disciplines finance had developed its own vocabulary.
But now we need to talk to our funding agencies, and to do that we need to learn their language.
Startup and Working Capital
Startup Capital, sometimes known as «Seed Money» refers to the money required to start a new business, whether for premises, permits, licenses, inventory, product development and manufacturing, marketing or any other expense part of which, Working Capital, is money available to a business to finance day-to-day operations.
Seed capital
– is the money you need to do your initial research and planning for your business.
By definition, you are seeking it before you have a working Business Plan, so it will be seen as very high risk funding by any potential investor.
Start-up capital
Start-up, or working capital, is the funding that will help you pay for equipment, rent, supplies, etc., for the first year or so of operation.
Bridge Capital or a Bridge Loan
as its name implies, bridges the gap between your current financing and the next tranche of financing.
By implication, it is unplanned borrowing and therefore considered ‘risky’.
Mezzanine Finance
funding to help your company grow. Often a combination of a loan and an equity purchase and relatively expensive.
Asking for bridging or Mezzanine funding might suggest a lack of business management skills on your part and your funding sources will look askance at your request. You will certainly pay the price.
Better to get your Business Plan and Budget right in the first place or raise a proper Business Case.
Some More DefinitionsThis time for sources of finance
Personal Funds
Most lenders and investors need to see some serious financial commitment of your own funds – why should they invest if you won’t?
Friends and Family
These are the people who know you best, and if they are willing to commit to you, then investors might do so too.
Debt
Usually in the form of bank loans. Most new businesses are financed this way but bankers are notorious for lending you an umbrella but demanding it back if it starts to rain
Grants
Governments and other agencies are keen to encourage business startups. Some make loans but more often they function by guaranteeing loans from third-party sources
Venture Capital
Venture Capitalists normally look for a Management team with a proven track record. They normally look to be in and out within say five years and to leave with a substantial profit
Equity Finance
In effect selling part of your new business, perhaps to a Business Angel
Crowdfunding
A child of the internet: raising your funds by securing a large number of small investments
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