Successful long-term growth for most businesses is dependent upon the availability of capital. When starting, expanding, or buying a business, unless you have access to funds personally or through friends or family, most businesses will require either debt financing or equity financing.

Debt financing occurs when a business borrows funds from a lender that must be repaid over a period of time, usually with interest. It can be either short-term, with full repayment due in less than one year, or long-term, with repayment due over a longer period. The lender does not take an ownership interest in the business. Loans are often secured by some or all of the assets of the company such as equipment, real estate, inventory, or accounts receivable.

In many cases business owners will be asked to provide 15 percent to 25 percent of the total amount of funding that they are seeking. Business owners may be asked to provide personal guarantees and pledge personal assets as well.

The Kentucky Cabinet for Economic Development, with its various loan and incentive programs for Kentucky-based businesses, and the U.S. Small Business Administration (SBA), through its loan guarantee programs, are both major sponsors of programs designed to assist business development.

Equity financing occurs when money is raised by a business in exchange for a share of ownership in the company. Equity financing allows a business to obtain funds without incurring debt, or without having to repay a specific amount of money over a particular time. Two key sources of equity financing for new and emerging businesses are angel investors and venture capital firms.

Not all businesses are viable candidates for equity or venture capital investors. Equity investors are primarily seeking innovative firms with high growth potential in the first few years of the business. They want to earn a high rate of return on their investment in the firm and then sell their ownership interest, hopefully at a significant profit. Therefore, an investor exit strategy is an important component of any venture capital strategy.

Many entrepreneurs seek government grants or “free money” for their business. Despite popular belief, grants are typically not a viable way to start or expand most businesses. In some cases, the government may have grant funds available. These funds, however, are usually tied to innovative or unique research and development efforts designed to spur new technologies.

Whether debt or equity capital is being sought, a strong business plan package is a must. For additional information or assistance, please email us at cedsbsd@ky.gov or call 800-626-2250.

Additional Resources:

U.S Small Business Administration (SBA) information on business financing
http://www.sba.gov/services/financialassistance/index.html

List of SBA preferred lenders in Kentucky
http://www.sba.gov/localresources/district/ky/financing/ky_pl.html

SBA 504 Loan Program
http://www.sba.gov/services/financialassistance/sbaloantopics/
cdc504/index.html

List of SBA Certified Development Company (504 loan) lenders in Kentucky
http://www.sba.gov/localresources/district/ky/financing/KY_CDC.html

SBA Express Loan Program
http://www.sba.gov/services/financialassistance/
7alenderprograms/sbaexpress/index.html

List of SBA Express Loan lenders in Kentucky
www.sba.gov/idc/groups/public/documents/
ky_louisville/ky_kyexpress.doc

SBA Community Express Loan Program
http://www.sba.gov/services/financialassistance/
7alenderprograms/comexpress/index.html

List of SBA Community Express Loan lenders in Kentucky
http://www.sba.gov/localresources/district/ky/
financing/ky_communityexpress.html

SBA Patriot Express Loan Program (for veterans)
http://www.sba.gov/services/financialassistance/
7alenderprograms/pe/index.html

SBA Micro-Loan Program
http://www.sba.gov/services/financialassistance/
sbaloantopics/microloans/index.html

List of SBA Micro-Loan lenders in Kentucky
http://www.sba.gov/idc/groups/public/documents/
ky_louisville/ky_micky.txt

SBA Small Business Investment Company Program (Venture Capital)
http://www.sba.gov/services/financialassistance/
equitycapital/investment/index.html

List of SBA Small Business Investment Companies in Kentucky
http://www.sba.gov/gopher/Local-Information/
Small-Business-Investment-Companies/sbicky.txt

Kentucky Cabinet for Economic Development Small Business Loan Program
http://www.thinkkentucky.com/kyedc/pdfs/
SmallBusinessLoanProgram.pdf

Kentucky Cabinet for Economic Development Direct Loan Program
http://www.thinkkentucky.com/kyedc/pdfs/kedfadcp.pdf

Kentucky Cabinet for Economic Development Business Incentive Programs
http://www.thinkkentucky.com/kyedc/kybizince.aspx

Kentucky Cabinet for Economic Development, Department of Commercialization and Innovation financing sources
http://www.thinkkentucky.com/dci/dcifunding.aspx

Kentucky Enterprise Fund pre-seed and seed stage capital funds
http://www.startupkentucky.com/?33

Venture Club of Louisville
http://ventureclub-louisville.org

Lexington Venture Club
http://www.lexingtonventureclub.com

Greater Owensboro Venture Club
http://www.owensboroventureclub.com