ba250 chapter 7 powerpoint
DESCRIPTION
TRANSCRIPT
*********
Chapter 7Chapter 7
How to Obtain the How to Obtain the Right Financing for Right Financing for
Your BusinessYour Business
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
*********
How To Obtain The Right Financing For Your Business
Importance Of Proper FinancingImportance Of Proper FinancingEstimating NeedsEstimating NeedsDebt Vs. Equity StructureDebt Vs. Equity StructureTypes/Sources Of Equity Types/Sources Of Equity & Debt& DebtWhat Lender Looks ForWhat Lender Looks For
7 - 2
*********7 - 3
McGraw-Hill/Irwin
Capital RequirementsCapital Requirements
A
FEDER AL RESERVE NO TE
THE UNITED STATES OF AMERICATHE UNITED STATES OF AMERICA
L70744629F
12
1212
12
L70744629F
ONE DOLLARONE DOLLAR
W A SHINGT O N, D .C.
TH I S N O TE IS LE G A L T E N D E R
F O R A LL D E B T S , P U B L I C AN D P R IV A T E
S E R I ES
1 9 85
H 293 Fixed AssetsFixed AssetsA
FEDER AL RESERVE NO TE
THE UNITED STATES OF AMERICATHE UNITED STATES OF AMERICA
L70744629F
12
1212
12
L70744629F
ONE DOLLARONE DOLLAR
W A SHINGT O N, D .C.
TH I S N O TE IS LE G A L T E N D E R
F O R A LL D E B T S , P U B L I C AN D P R IV A T E
S E R I ES
1 9 85
H 293 Working CapitalWorking Capital
Current AssetsCurrent Assets
-Current LiabilitiesCurrent Liabilities
Working CapitalWorking CapitalPhotoLink/Getty Images
*********7 - 4
Types Of FinancingTypes Of Financing
Debt- Lender’s Income Debt- Lender’s Income Does Does NotNot Vary With Vary With Business SuccessBusiness Success
Equity- Stockholder’s Equity- Stockholder’s Income Income DoesDoes Vary With Vary With Business SuccessBusiness Success
PhotoLink/Getty Images
*********7 - 5
Cash BudgetsCash Budgets$
$
$
$$ Project Working Capital NeedsProject Working Capital Needs$
$
$
$$ Reflects Reflects WhenWhen$
$
$
$$ Revenue CollectedRevenue Collected$
$
$
$$ Expenses PaidExpenses Paid$
$
$
$$ Considers Seasonal Considers Seasonal Revenue FluctuationsRevenue Fluctuations
$
$
$
$$ Used For Obtaining Working Used For Obtaining Working Capital (Line Of Credit) LoansCapital (Line Of Credit) Loans
*********7 - 6
Equity FinancingEquity FinancingOwner’s Claim Share Of Owner’s Claim Share Of
Firm’s AssetsFirm’s AssetsProprietorship/Partnership Proprietorship/Partnership
Equals Owner’s Personal Equals Owner’s Personal AssetsAssets
Corporation = Stock, Corporation = Stock, 1 Share = 1 Vote 1 Share = 1 VoteCommonCommonPreferredPreferred
Investment Liquidity Investment Liquidity Depends On MarketDepends On Market
PhotoLink/Getty Images
*********7 - 7
Common StockholdersCommon Stockholders
Real Owners Of Real Owners Of
CorporationCorporation
Financial Claim Is Financial Claim Is AfterAfter
All Others All Others
Right To VoteRight To Vote
Control ManagementControl Management Royalty-Free/CORBIS
*********7 - 8
Small BusinessSmall BusinessShare Of StockShare Of Stock
*********7 - 9
Preferred StockholdersPreferred StockholdersClaim To ProfitsClaim To Profits
oBeforeBefore Common Stock Common Stock DividendsDividends
oNot Legally EnforceableNot Legally Enforceable
No Voting RightsNo Voting RightsFixed Par Value & Fixed Par Value &
DividendDividendCumulative DividendCumulative Dividend
*********
7 - 10
Small CompanySmall CompanyOffering Registration (SCOR)Offering Registration (SCOR)
Raise Up To $1 Million Raise Up To $1 Million
TradedTraded
oAMEXAMEX
oNASDAQ- OTCNASDAQ- OTC
Ryan McVay/Getty Images
*********
7 - 11
Sources ofSources ofEquity FinancingEquity Financing
SelfSelfSmall Business Investment Small Business Investment
Companies (SBICs)Companies (SBICs)Venture CapitalistsVenture CapitalistsAngel CapitalistsAngel CapitalistsOtherOther
oBusiness IncubatorsBusiness IncubatorsoEmployee Stock Ownership Employee Stock Ownership
Plans (ESOPs)Plans (ESOPs)oCustomersCustomers
PhotoLink/Getty Images
*********
7 - 12
BarteringBarteringCompanies Swapping Companies Swapping Items Of Equal ValueItems Of Equal ValueUsesUses
Business TravelBusiness TravelDebt CollectionDebt CollectionClosing A SaleClosing A SaleEmployee Perks/BonusesEmployee Perks/BonusesLine Of CreditLine Of Credit
Subject To TaxSubject To Tax
Artville/Getty Images
*********
7 - 13
AccountingAccountingFor Bartering For Bartering
Items Dissimilar- Items Dissimilar- Gain vs. Loss Gain vs. Loss
Items Alike- Use Book Items Alike- Use Book Value Of Old Item Value Of Old Item
Janis Christie/Getty Images
*********
7 - 14
Debt FinancingDebt FinancingComes From LendersComes From Lenders
Must Be RepaidMust Be Repaid
oAt Specified Interest RateAt Specified Interest Rate
oWithin Agreed-Upon Time SpanWithin Agreed-Upon Time Span
Legal Claim On Assets Legal Claim On Assets Before StockholdersBefore Stockholders
Equity = Safety Net For Equity = Safety Net For LendersLenders
Ryan McVay/Getty Images
*********
7 - 15
Debt Financing Advantages Debt Financing Advantages
1)1) Cost Of Debt Lower Than Cost Of Debt Lower Than EquityEquity
2)2) Interest Payments DeductibleInterest Payments Deductible3)3) Debt Funding Allows For Debt Funding Allows For
More Capital To Be More Capital To Be Raised In Addition Raised In Addition To Equity To Equity
4)4) Since Debt Payment Is Since Debt Payment Is Fixed It Allows Owner To Fixed It Allows Owner To Keep Remaining Profits Keep Remaining Profits
5)5) LeverageLeverageRoyalty-Free/CORBIS
*********
7 - 16
Debt SecuritiesDebt SecuritiesBondBond
oPublicly IssuedPublicly Issued
oLarge CompaniesLarge Companies
LoanLoanoCommercial BanksCommercial Banks
oInsurance CompaniesInsurance Companies
oFinance CompaniesFinance Companies
Royalty-Free/CORBIS
*********
7 - 17
Securities’ MaturitiesSecurities’ Maturities
Short-Term- Less Short-Term- Less Than 1 Year Than 1 Year
Intermediate- 1 To Intermediate- 1 To 5 Years 5 Years
Long-Term- 5 Years+Long-Term- 5 Years+
Royalty-Free/CORBIS
*********
7 - 18
BondsBondsStandard Standard
DenominationDenomination
Method Of Interest Method Of Interest PaymentPayment
Method Of Principal Method Of Principal PaymentPayment
Royalty-Free/CORBIS
*********
7 - 19
Types Of LoansTypes Of LoansMortgage- Secured By Real Mortgage- Secured By Real
EstateEstate
Chattel Mortgage- Collateral Chattel Mortgage- Collateral Other Than Land, e.g., Other Than Land, e.g., Machinery, Vehicles, InventoryMachinery, Vehicles, Inventory
Asset-Based- Secured By Asset-Based- Secured By AR & Inventory AR & Inventory
Unsecured- Personal Unsecured- Personal GuaranteesGuarantees
Royalty-Free/CORBIS
*********
7 - 20
Sources Of Debt FinancingSources Of Debt Financing
Trade CreditTrade Credit
Commercial/Other Commercial/Other
Financial Institutions- Financial Institutions-
Line Of Credit Line Of Credit
Credit CardsCredit Cards
Insurance CompaniesInsurance Companies
Ryan McVay/Getty Images
*********
7 - 21
Suppliers OfSuppliers OfSmall Firm CreditSmall Firm Credit
Other3%
Banks83%
Family & Friends
6%
Finance Cos.8%
*********
7 - 22
Traditional SourcesTraditional SourcesOf Small Firm CreditOf Small Firm Credit
13%
27%18%
11%
10% 21%
Line Of Credit
Mortgage
Vehicle
Equipment
Lease
Other
Source: Small Business Administration, http://www.sba.gov/advo/research/banking.html
*********
7 - 23
Non-Traditional SourcesNon-Traditional SourcesOf Small Firm CreditOf Small Firm Credit
46%
14%6%
34%
Owner Loan
Personal CreditCard
Business CreditCard
Unknown
Source: Small Business Administration, http://www.sba.gov/advo/research/banking.html
*********
7 - 24
SmalSmalllBusiness AdministrationBusiness Administration
Guaranteed Loans- 7(a) = 30 Guaranteed Loans- 7(a) = 30 to 40% Of Long-Term Loansto 40% Of Long-Term Loans
Purchase Land, Buildings, Purchase Land, Buildings, EquipmentEquipmentWorking CapitalWorking CapitalRefinance Existing DebtRefinance Existing DebtSeasonal Lines Of CreditSeasonal Lines Of Credit
Specialized ProgramsSpecialized ProgramsSBICsSBICsU.S. Department Of U.S. Department Of
AgricultureAgriculture
Ryan McVay/Getty Images
*********
7 - 25
SBASBARequired DocumentsRequired Documents
Narrative Business PlanNarrative Business PlanResumesResumesLoan RequestLoan Request
How To Be UsedHow To Be UsedList Of AssetsList Of Assets
Financial Statement- 3 YearsFinancial Statement- 3 YearsFirm’sFirm’sPersonalPersonal
CollateralCollateral
Royalty-Free/CORBIS
*********
7 - 26
Lenders Want To KnowLenders Want To KnowStartupStartup
oCan You Live Without Can You Live Without Income From Business?Income From Business?
oLoan Repayment?Loan Repayment?
oCollateral?Collateral?
ExistingExistingoTrack RecordTrack Record
oFuture Difference?Future Difference?