Non-Equity Financing for Entrepreneurial Ventures

Young, and particularly high-growth ventures often need to raise significant external finance, since their internal cash flow is usually insufficient to support the investments needed to grow. Although raising equity from venture capital or angel investors is the most well-known source of external finance for high-growth ventures, many entrepreneurs, particularly small business owners, rely on debt and other non-equity sources of capital to finance their ventures, either because equity capital is not available to them or because they want to avoid the ownership dilution and governance constraints associated with equity investments.

This note focuses on these non-equity sources of financing for entrepreneurs, paying particular attention to how the emergence of new technologies in risk assessment have expanded their availability for young firms.