Professional Documents
Culture Documents
Chapter
11
Sources of Capital
11-2
Overview
Debt Financing- Interest-Bearing Instrument Requiring Collateral (Asset) Equity Financing- Investor Receives Ownership Position Financing Usually A Combination Of Debt And Equity
11-3
Internal Funds
Profits Sale of Assets- Rent Instead Of Purchase Working Capital Reduction Extended/Discounted Payment TermsSuppliers Accounts Receivable- Speed Up Collection Reduction of:
Inventory Cash Working Capital Items
11-5
External Funds
Self Family & Friends Suppliers & Trade Credit Commercial Banks Government Loan Programs
R & D Limited Partnerships Venture Capital Private Equity Placements Public Equity Offerings Other Government Programs
11-6
Personal Funds
Essential To Attract Outside Capital- Indicates Owner Commitment, % Of Personal Assets Sources:
Savings Life Insurance House/Car Mortgage
11-7
Private Placement
Formalized Method For Obtaining Funds From Private Investors Regulation D- Governs Private Offerings
Broad Provision To Simplify Defines Private Offering Specific Operating Rules
11-9
Commercial Banks
Bank Loans- Asset Based
Accounts Receivable Inventory Equipment Real Estate
Lending Decisions
Based On Quantifiable Information & Subjective Judgment Five Cs
1. 2. 3. Character Capacity Capital 4. 5. Collateral Conditions
Lending Questions
Does Entrepreneur Expect To Be Carried By Loan? Is Entrepreneur Committed To Spend Effort To Succeed? Business Have Unique Advantage? Downside Risks? Protection Against Disasters?
11-12
11-13
SBA Financing
When Entrepreneur Doesnt Have:
Track Record Assets
SBA-Guarantee For:
Working Capital Machinery/Equipment Furniture/Fixtures Land/Building Leasehold Improvements Debt Refinancing
11-14
SBA Conditions
Business Cash Flow Five Cs- 20%+ Ownership Requires Personal Guarantee Eligibility:
Size Type Of Business Use Of Proceeds Availability Of Funds From Other Sources
11-15
Microloan- 7(m)
Short-Term < $35,000 Working Capital, Inventory, Supplies, Furniture, Fixtures, Machinery, Equipment Not For Existing Debt
11-17
Useful When:
High Risk Significant Expense
11-18
II.
11-21