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BUTTERFIELD BANK PRESENTATION TO BUSINESSES “Approaching Your Bank”. October 2008. EQUITY VS DEBT FUNDS. Equity Funds
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BUTTERFIELD BANKPRESENTATIONTO BUSINESSES“Approaching Your Bank” October 2008
EQUITY VS DEBT FUNDS • Equity Funds • Comes from selling a portion of the business to yourself or another person. The amount you have to sell to acquire the needed funds reflects the amount of risk that the investor perceives. • Debt Funds • A loan, usually from a bank that the lender expects you to repay at some determinate time. The lender will ordinarily receive a return for the use of the funds in the form of interest. The interest rate reflects the lender’s perceived risk.
START UP BUSINESSES • Challenge of obtaining equity • Sources of equity • Personal savings • Co-owners • Friends • Family • Angels • Access to equity is somewhat limited
Equity Funding • Advantages: • Investors may offer valuable advice and assistance. • You can be flexible about repayment requirements. • In the event of business losses, you may not have to pay investors. • Disadvantages: • -Investors require a greater share of profits than interest on a loan. • -Investors can sue you. • -Investors have to be informed of significant business events
Debt Funding • Advantages: • Only obligation to lender is to repay the loan on time. • The lender has no management say. • The lender has no direct entitlements to profits in your business. • Disadvantages: • -You may have to assign a security interest in your property. • -You can be sued personally.
EIGHT OF THE MOST COMMON MISTAKES MADE BY ENTREPRENEURS • Failing to borrow funds • Overlooking available financial resources • Underestimating financial risks • Ignoring the downside of having investors • Making unrealistic estimates of borrowing potential • Neglecting to manage lender relationships • Preparing a loan application under pressure • Failing to forecast cash needs
Five Helpful Tips! • Research what grants and outside support are available. • Make sure your business plan and financial projections are well thought out. • Always ask for enough finance. • Maintain quality financial information. • Bring all relevant supporting documentation.