Financials Propel

2. Financing – The Basics
• What is Financing?
• Why Financing?
• How to Get Financing?

3. Three Types of Lending
1. Short-term Financing
• Financing usually through notes to be paid within one year or
less, and paid in one sum
2. Intermediate-term Financing
• Financing for one to five years, usually repaid on a monthly
basis
3. Long-term Financing
• Financing for five or more years, such as real estate financing,
where repayment is made on a schedule over a period of
many years
Financing

4. Banker’s Risk
• Secured vs. Unsecured
– Secured Loan: Backed up by collateral
– Unsecured Loan: Not backed by collateral
• Bankers are taking a risk on your business
• Keep your debt to worth ratio low
Debt to Worth
= Total Debt
Net Worth
Financing

5. Four Common Abuses of Funds
1. Undercapitalization
2. Excess Debt
3. Insufficient Use of
Credit
4. Friday-night Financing
Financing

6. Why Financing?
Sources of Financing:
1. Your Savings
2. Your Family
3. Your Friends
4. Banking Institution
5. Professional Investor
Financing

7. Risk Assessment
• What the bank will consider about your business:
– Experience of the borrower
– Experience with the borrower
– Ability of the borrower to pay back the loan
– Equity in the business
– Collateral, cosigners, and co-makers
– Terms of the loan
Financing

8. Six Steps to Getting Financing
1. Identify different needs for funds within the
business
2. Determine how much money is needed
3. Identify the type of money needed
4. Schedule when the money is needed
5. Develop a financing plan
6. Implement and review your financing plan
Financing

9. Step #1: Identify Different Needs
for Funds Within the Business
• Base financing on business needs
• Don’t base business around financing
available
– What does your business need?
– When will it be needed?
– How long will it be needed for?
Financing

10. Step #2: Determine How Much
Money is Needed
Calculate:
1. Your Capital Asset Cost
2. Your Working Capital
3. Your Safety Margin or
Contingency Reserve
Financing

11. Components to Calculate
Capital Needs
1. Total Capital
Asset Cost
Financing
3. Safety Margin or
Contingency Reserve
2. Working Capital Projections

12. Step #3: Identify the Type of
Money Needed
• Make sure the cost of
debt does not exceed
the potential return
• Credit and debt allow
you to grow
• Ultraconservative
philosophies of
avoiding debt are not
functional
Financing

13. Step #4: Schedule When the
Money Needed
• Avoid last minute
planning
• Friday-night Financing
– Desperation is generally
a sign of poor
management
– Clear warning to
investors
Financing

14. Step #5: Develop a Financing
Plan
• Identify where you will secure the funds that are
needed
• Identify what actions are needed in order to secure the
funds
• Form a backup plan and avoid problems
• Keep in touch with financing prospects
• Keep the source of money in mind as you prepare the
proposals
– Design proposals to suit financier’s needs
Financing

15. Step #6: Implement and Review
Your Financing Plans
• Periodically update and review
– At least annually, and preferably more often
• Make sure loaned proceeds are being used according
to the plan
– Don’t mistake loan proceeds as operating profits
• Stick to the plan – no extra preventable costs
Financing

16. Summary
Good financial management is the cornerstone for better,
more satisfying, and more profitable business operations.
Financing

17. Question & Answer