1 / 38

Non-Equity Financing for the Company

Non-Equity Financing for the Company. Using FRICTO Framework. Determine how to fund the business Seek Debt Use Equity. The Entrepreneurial Funding Problem. Demand for small-business financing is greater than supply 50% of firms begin with less than $5000 in capital

gemma-ware
Download Presentation

Non-Equity Financing for the Company

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Non-Equity Financing for the Company

  2. Using FRICTO Framework • Determine how to fund the business • Seek Debt • Use Equity

  3. The Entrepreneurial Funding Problem • Demand for small-business financing is greater than supply • 50% of firms begin with less than $5000 in capital • Funded by owner, family members, or friends • Thus most companies start under funded and stay that way

  4. The Entrepreneurial Funding Problem • Equity is hard to find for small businesses • Debt is hard to find (Loans) • Companies requesting funds often are under three years old and considered a risk

  5. Five Stages of Financial Development • Start-up • Most difficult period for obtaining funds • Development Stage • Expansion Stage • Growth Stage • Public Offering

  6. Small Firms vs Larger Firms • Small firms (under 100 Employees) • 26 % had line of credit • 9% had financial leases • 6% had mortgage loans • 14% had equipment loans • 24 % had motor-vehicle loans

  7. Small Firms vs Larger Firms • Larger Firms • 60% had a line of credit • 30% had financial leases • 19% had mortgage loans • 29% had equipment loans • 26% had motor vehicle loans

  8. Banks • 37% of these funds for small firms comes from commercial banks • Other suppliers include • Finance companies • Leasing companies • Other non-financial institutions

  9. Non-institutional Financing • First choice • Personal Funds • Family and Friends • Supplier financing • Seller financing • Business Incubators • Franchises • Joint ventures

  10. Personal Resources • Includes Family and Friends • Are the funds sufficient? • Can they withstand the possible loss? • How will loss effect relationships?

  11. Supplier Financing • Supplied through generous payment terms or direct loans. • Non-financial assistance • Management Consulting • Introduction to potential customers

  12. Seller Financing • Equipment sellers will finance a sale by accepting payments and taking a lien on the property. • Buying a business, seller may want to stay involved and offer a payment plan

  13. Business Incubator • A place that you can rent space to run your business • Utilize the group resources • Share administrative supports and staff • Incubators in PA

  14. Franchising • Agencies that assist with evaluating you for a specific franchise • Purchasing an existing franchise • Franchise Opportunities • Top 500

  15. Joint Venture and Strategic Alliances • Developing a new market • Developing a new product or technology • Sharing complimentary technology • Accessing a distribution network • Sharing in the execution of a contract • Accessing capital

  16. Co-Branding • Two or more companies create an informal partnership • Resort and Airline offer a vacation package • Share of advertising, increase marketability

  17. Non-Governmental Institutional Funding • Commercial Banks • Credit-card Companies • Thrifts • Commercial Financing Companies

  18. Commercial Bank Funding • Credit Card Loans • Commercial Banks • Short-term loans • Lines of credit • Floor plans • Construction loans • Long-term loans • Real-estate loans • Letters of credit

  19. Finding The Right Bank • Most people look to their primary bank • Types of banks include • Money-center banks • Super-regional bank • Regional bank • Community bank

  20. The Loan Application Process • Explain the business strategies • Identification of the borrower • Identification of the loan request and its timing • Uses for funds • Other sources of funds • Cash flow projections • Collaterial

  21. Six C’s of Credit • Character • Cash Flow • Capital • Capacity • Collateral • Credit History

  22. Common Reasons Loans are Denied • Incomplete loan proposal • Unsupported cash flow projections • Inexperienced Management • Ability to repay the loan • Unrealistic revenue projections • Unrealistic expense projections • Underestimated Capital needs • Lack of adequate collaterial

  23. After The Loan Is Approved • Commitment Letter • Loan Agreement • Promissory Note • Security Agreement

  24. Loan Agreement • The amount of loan • Repayment schedule • Restrictive Covenants (2 Kinds) • Company’s representation • Special Conditions • Closing fees • Insurance • Default conditions • How to fix default

  25. Restrictive Covenants • Negative covenants • What you can not do without banks approval • Affirmative covenants • Actions the company must take

  26. Promissory Note • Contains Key provisions of the loan • Interest rate • Term of the loan • Repayment schedule • When payment is late • Default description and remedy

  27. Security Agreement • Details the lender’s interest in a specific piece of collaterial • Also filed with the state

  28. Other Non-Governmental Funding • Thrifts (Savings and Loan) • Better service • Better pricing • Relaxed credit • Specialized in mortgages

  29. Commercial Finance Loans • Easier loan to obtain • Commercial Finance Association

  30. Factoring • Buys the company’s receivables at a reduced price • Recourse Agreement • Company must buy back unsold products • Non-recourse Agreement • Products are the property of the factoring agent

  31. Factoring Advantages • Accelerate cash flow • Not dependent on credit of company • Reduce debt need on balance sheet • Reduce staff need to move product

  32. Equipment Leasing • Operating Leasing • Lessee can return equipment at any time with proper notice • Lease payments are treated as operating expense • Finance leasing • Can not cancel lease without penalty • Show as a liability on Balance sheet • Advantages

  33. Government Financing • SBA (Small Business Administration) • Uses Private lenders to manage loans • Classified as • Regular – SBA controls approval of the loan • Certified – Heavily involved in SBA loans • Preferred – Chosen by SBA has among the best lenders • Offers both long term and short term loans through various programs

  34. SBA Programs • 7(a) Guaranteed Loans • Good Character, management, expertise, and commitment • Contributing Funds • Feasibility plan • Investment in the business • Collaterial

  35. SBA Programs • Special 7(a) • CAPLines Program – Meet short term and season work capital loans • Export Working Capital – Working capital needs of Business exporter • International Trade Loan – Those involved in international trade • DELTA - For small businesses affected by defense cuts

  36. SBA Programs • MicroLoan Program • Focuses on non-profit organizations • Loan money is used to lend to other small businesses • Typically small loans up to $35,000

  37. SBA Programs • 504 • Certified Development Company Program • Loan from a private sector lender • No collateral required • Small Business Administration

  38. State and Local Government • Pennsylvania Economic Development • CREDC • SEDA-COG • Harrisburg - Mayor's Economic Development Office

More Related