Sources of Financing: Debt and Equity
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Sources of Financing: Debt and Equity






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Sources of Financing: Debt and Equity Sources of Financing: Debt and Equity Presentation Transcript

  • Sources of Financing: Debt and Equity If you don’t know who the fool is on the deal, it’s you! ...Michael Wolff
  • Planning for Capital Needs
    • Capital : any form of wealth employed to produce more wealth
    • Fixed capital : to purchase a company’s permanent or fixed assets such as land, buildings, computers, and equipment
    • Working capital : to support a business’s short-term operations
    • Growth capital : to finance a company’s growth or its expansion in a new direction
  • Equity vs Debt Capital
    • Equity capital : represents the personal investment of the owner (s) of a company
    • Debt capital : the financing that a small business owner has borrowed and must repay with interest
  • Sources of Equity Capital
    • Personal savings
    • Friends and family members
    • Angels
    • Partners
    • Corporate venture capital
    • Venture capital companies
    • Public stock sale
  • Angels
    • Private investors , wealthy individuals, entrepreneurs themselves, who provide money in exchange for equity stakes
    • Ranging from $10,000 to $2M
    • Every year: 230,000 angels , $23 B, 50,000 companies
    • Average: 10% of opportunities, 2 investments per year, $80,000 in 3.5 firms
    • Angel networks : 200
    • Patient money
  • Venture Capital Companies
    • $3-10M
    • Competent management
    • Competitive edge
    • Growth industry
    • Viable exit strategy
    • Intangible factors
  • Public Stock Sale
    • Advantages
    • Ability to raise large amounts of capital
    • Improved corporate image
    • Improved access to future financing
    • Use of stock for acquisitions
    • Listing on a stock exchange
  • Public Stock Sale
    • Disadvantages
    • Dilution of ownership
    • Loss of control
    • Loss of privacy
    • Reporting to SEC
    • Filing expenses
    • Accountability to shareholders
    • Pressure for short-term performance
    • Demands of time and timing
  • Debt Financing
    • Commercial banks
    • Non-banks
    • Federally-sponsored programs
    • State and Local Development Programs
    • Internal methods of financing
  • Commercial Banks
    • Short-term loans
    • Commercial loans
    • Lines of credit
    • Floor-planning
    • Intermediate and long-term loans
    • Installment loan
    • Term loan
  • Non-Bank Sources
    • Asset-based lenders
    • Vendor financing
    • Equipment suppliers
    • Commercial finance companies
    • Savings and loan associations
    • Stock brokerage houses
    • Insurance companies
    • Credit unions
    • Bonds
    • Private placements
    • Small business investment companies
    • Small business lending companies
  • Federally Sponsored Programs
    • Economic Development Administration
    • Department of Housing and Urban Development
    • Department of Agriculture’s Rural Cooperative Service
    • Small Business Innovation Research Program
    • Small Business Technology Transfer Program
    • Small Business Administration
  • Small Business Administration
    • Low Doc Loan Program
    • SBA Express Program
    • 7A Loan Guaranty Program
    • CAPLine Program
    • Loans Involving International Trade
    • Section 504 Certified Development Company Program
    • Microloan Program
    • Prequalification Loan Program
    • Disaster Loans
  • State and Local Loan Development Programs
    • Capital access programs : encourages lending institutions to make loans to businesses that do not qualify for traditional financing because of higher risk
    • Revolving loan funds : offered by communities that combine private and public funds to make loans to small businesses, often at below-market interest rates
  • Internal Methods
    • Factoring accounts receivable
    • Leasing
    • Credit cards