borrowing through banks or bonds; and (4) by selling stock. When business owners choose financial capital

sources, they also choose how to pay for them.

Early-Stage Financial Capital

Firms that are just beginning often have an idea or a prototype for a product or service to sell, but few

customers, or even no customers at all, and thus are not earning profits. Such firms face a difficult problem

when it comes to raising financial capital: How can a firm that has not yet demonstrated any ability to earn

profits pay a rate of return to financial investors?

For many small businesses, the original source of money is the business owner. Someone who decides to start

a restaurant or a gas station, for instance, might cover the startup costs by dipping into their own bank

account, or by borrowing money (perhaps using a home as collateral). Alternatively, many cities have a

network of well-to-do individuals, known as “angel investors,” who will put their own money into small new
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