Contribution to the economy

Small Business is the major job provider in most economies. The top job provider is those with less than 10 employees, and those with 10 or more but less than 20 employees comes in as the second, and those with 20 or more but less than 50 employees comes in as the third.


Sources of funding

Small businesses use several sources available for start-up capital:

* Self-financing by the owner through Cash, equity loan on his or her home, and or other assets.
* Loans from friends or relatives
* Private stock issue
* Forming partnerships
* Angel Investors
* SME finance, including Collateral based lending and Venture capital, given sufficiently sound business venture plans

Some small businesses are further financed through credit card debt - usually a poor choice, given that the interest rate on credit cards is often several times the rate that would be paid on a line of credit or bank loan. Many owners seek a bank loan in the name of their business, however banks will usually insist on a personal guarantee by the business owner. In the United States, the Small Business Administration (SBA) runs several loan programs that may help a small business secure loans. In these programs, the SBA guarantees a portion of the loan to the issuing bank and thus relieves the bank of some of the risk of extending the loan to a small business. The SBA also requires business owners to pledge personal assets and sign as a personal guarantee for the loan.

Ownership equity

At the start of a business, owners put some funding into the business to finance assets. Businesses can be considered for accounting purposes to be sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business. Thus, in accounting terms, ownership equity is the remaining interest in all assets after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists.

This definition is helpful when a business is not paying its bills and gets liquidated, wound up, put into receivership or bankruptcy. Then, a series of creditors, ranked in priority sequence, have the first claim on the proceeds (e.g. asset sales), and ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such a case, creditors may not get enough money to pay their bills, and nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital, liable capital and equity.

When the owners are shareholders, the interest can be called shareholders' equity; the accounting remains the same, although shareholders may allow different priority ranking among themselves by the use of share classes, and options. This complicates both analysis for stock valuation, and accounting.

Equity capital

Equity capital is defined as the amount of capital provided by the company's owner(s). Providing new equity (an "issuance" of new equity) gives the firm new capital and increases owners' equity by the same amount and time needed. An issuance of new shares, to raise new capital, increases shareholders' equity. Formally, owners' equity is also a form of liability, but is deemed separate and different from other liabilities since it is a residual interest, ranked last in the series; equity is generally considered to be an asset.



Market Value of shares

In the stock market, market price per share does not correspond to the equity per share calculated in the accounting statements. Stock valuations, often much higher, are based on other considerations related to the business' operating cashflow, profits and future prospects; some factors are derived from the accounting statements. Thus, there is little or no correlation between the equity seen in financial statements and the stock valuation of the business.


Real Estate equity

Individuals can also use market valuations to calculate equity in real estate. An owner refers to his or her equity in a property as the difference between the market price of a property and the liability attached to the property (mortgage or home equity loan). This is the exact opposite of how equity is considered for accounting purposes.