For a small business owner there are two options of financing, one way is through sources of equity financing where a business will look to non-professional investors such as friends, relatives, employees, customers, or industry colleagues to raise start-up capital or increase growth capital. Also, with equity financing there are Corporate Venture Capital, Venture Capital Firms, Angles, and Partners to consider in finding the capital needed for your business. Usually by financing your business through any of these methods you are receiving capital but may be losing part of your ownership. (Scarborough & Zimmerer, 2003)
The second option of financing is with debt financing. This is when a business borrows the money for capital and repays the lender back with interest. Unlike equity financing, debt financing allows business owner's to keep all of the business control and this method can be a better option for established businesses. One very popular source for debt financing is through commercial banks. Another source for debt financing is through a non-bank source such as asset-based lenders. These lenders although smaller then most commercial banks and finance companies are able to finance to the smaller businesses by having owner's put up collateral to insure the repayment of the loan. (Scarborough & Zimmerer, 2003)
As for Custom Stitches, the best option would with debt financing. If Andy was to borrow his capital with a source of equity he may have a harder time finding friends and family members to borrow $700,000 from. Also, if he was to borrow money from friends or family it may cause more problems such as misconstrued expectations of the business. In addition to financing, Angels and Venture Capital Firms purchase equity in a small yet pote ...