The primary source of equity capital is the personal savings of the buyer of the business. Although many small businesses are incorporated, the sale of stock is seldom a source of capital for the small business. Few buyers, however, have enough personal savings to finance the purchase of a small business without any debt financing. An individual may borrow money for the purchase of a business by obtaining a personal loan, by borrowing against insurance policies, or by re-financing the mortgage on his home. These debts are not direct debts of the business, but the debts of a small business and the personal debts of the owner cannot be completely separated.
Banks are the principal institutional source of debt capital for small businesses.
The seller as lender. In the sale and purchase of Sam's Market, the buyer s savings plus a bank loan were not enough to finance the purchase. Sam agreed to accept payment of part of the purchase price over an extended period of time. The seller is sometime a source of capital to the buyer of a small business, as in Bill s case. A happy circumstance if it is handled properly.