Financing Your Business

What are the available financing options?

There are several options available to finance your startup or existing business.  These options may or may not work for you depending on many factors.  These financing options include:

  • Own Financing
  • Friends, Family and Fools’ (FFFs) Financing
  • Loan Financing
  • Equity Financing
  • Asset-Based Financing
  • Mezzanine Financing
  • Grants

Your Money:

The easiest and quickest way to finance your business, upstart or expansion, is to use your own money – if you have savings, know what you’re doing and willing to take risk.

FFFs’ Money:

Next in line is having access to funding from friend or family members – long lost uncles.  Funding from these sources maybe available due to the fact that they may be willing to fund you because they respect you, believe in you or love you.


Loan Types:

  • Line of Credit – Short Term Working Capital
  • Term Loan – Real Estate, Equipment or Other Long Term Capital Requirements
  • Guarantee Programs:
    • Small Business Administration (SBA)
    • CalCap
    • State Loan Guarantee
  • Economic Development Programs such as CEDLI

The Small Business Administration (SBA) is a valuable funding resource for many businesses. However, the SBA itself does not actually make loans. Instead, the SBA guarantees bank loans, allowing commercial lenders to make loans that they may not otherwise. The SBA, through its programs, reimburses lenders for a guaranteed portion of the loan (usually up to 85%), making it less risky for them.

In order to be able to obtain a loan, SBA or conventional, you must meet the basic financial institution risk rating, which is known as the “5 Cs of Lending”:

  1. Character – Responsibilities and Treatment of Employees and Customers
  2. Cash Flow – Debt Handling, Repayment Record, Debt Liquidity and Ratios
  3. Collateral – Hard assets, Real Estate, Capital Equipment, Accounts Receivables
  4. Capitalization – Skin in the Game, Business Resources, Own Risk
  5. Conditions – Economic Conditions, Market Sensitivity, Expense Management

Equity Financing:

Raising money from investors in lieu of equity is always an option.  There are several types of investors and investing institutions including:

  • Angels
  • Super Angels
  • Angel Groups
  • Venture Capital

Each investor type has its own criteria and tolerance for the type and amount of investment they are willing to make. None professional angel investors look for rare opportunities that they understand or willing to take a risk in.  Other angel investors, super angels and angels that invest in a professional or semi-professional capacity as part of angel groups, have their own set of rules and criteria that they follow.  Though they differ from one to the next, one of the common denominators for a typical investment is investing in fast growth businesses that are highly scalable and can potentially reach 10s of millions to 100s of millions of dollars in a 3 to 7 year period.  In these situations, investors are looking to own shares in the business on average ranging between 5 and 50% of the company’s stock.

Asset-Based Financing:

Asset-based financing is a specialized method of providing structured working capital and term loans that are secured by accounts receivable, inventory, machinery, equipment and/or real estate. This type of funding is great for startup companies, refinancing existing loans, financing growth, mergers and acquisitions.

An example of asset-based finance would be purchase order financing; this may be attractive to a company that has stretched its credit limits with vendors and has reached its lending capacity at the bank. The inability to finance raw materials to fill all orders would leave a company operating under capacity. The asset-based lender finances the purchase of the raw material, and the purchase orders are then assigned to the lender. After the orders are filled, payment is made to the lender, and the lender then deducts its cost and fees and remits the balance to the company. The disadvantage of this type of financing, however, is the high interest typically charged.

Mezzanine Financing:

Mezzanine is a hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.

Since mezzanine financing is usually provided to the borrower very quickly with little due diligence on the part of the lender and little or no collateral on the part of the borrower, this type of financing is aggressively priced with the lender seeking a return in the 20-30% range.

Mezzanine financing is advantageous because it is treated like equity on a company’s balance sheet and may make it easier to obtain standard bank financing. To attract mezzanine financing, a company usually must demonstrate a track record in the industry with an established reputation and product, a history of profitability and a viable expansion plan for the business.


There is no such thing as free money.  Grants have specific requirements for funding.

For businesses and entrepreneurs there few and limited grants that for the most part cover a portion of the cost of certain training programs.

In general, grants are made to individuals, companies, businesses, organizations or institutions that are working toward serving the greater good or a greater cause.  These grants include funding to educational institutions, researchers, research centers, colleges/universities, etc… who are researching or developing leading edge solutions in several categories including agriculture, education, energy, health, medical, space, science and technology to name a few.

The Orange County SBDC provides business owners and executives with one-on-one confidential business consulting to the North County business community. If you have a business in North Orange County or are planning to expand into North Orange County and need assistance with your business, we can help in the following areas of expertise: Startup, Business Planning, Growth/Expansion, Operations, Management, Sales, Marketing, Finance, Access to Capital, Technology, and more…

Qualified businesses are able to receive assistance in many business disciplines at no cost and no catch.

For additional information and qualification or to make an appointment, please call 657-859-9722, email or visit us at

Looking to start or grow your business?

We at the Orange County Inland Empire SBDC, are here to help you with every aspect of your business to help it grow and become successful.
Give us a call at 1-800-616-7232 or schedule a quick, 15-minute intake appointment at to see how we can help you start, grow, and succeed.

Financing Your Business

Mike Daniel is the network director of the Orange County Inland Empire SBDC Network, which assists aspiring entrepreneurs and current business owners throughout Orange, San Bernardino and Riverside counties. Mike was formerly the director of the SBDC office at Long Beach City College. As business owner and entrepreneur himself, he started his career as the owner of a Rocky Mountain Chocolate Factory location in Manhattan Beach and went on to open a second location in Long Beach in 2001. In 2007, Mike sold the Manhattan Beach store for an above-market offer then invested in several additional locations as a minority shareholder. Mike further expanded his candy empire with venture located in Shoreline Village in Long Beach called Sugar Daddies Sweet Shoppe, based on fill-it yourself candy options.

Mike has a bachelor’s degree in Business Administration from California State University, Fullerton.