sources of financing: debt and equity if you don’t know who the fool is on the deal, it’s...
TRANSCRIPT
Sources of Financing: Sources of Financing: Debt and Equity Debt and Equity
If you don’t know who the fool is If you don’t know who the fool is on the deal, it’s you!on the deal, it’s you!...Michael ...Michael
WolffWolff
Planning for Capital NeedsPlanning for Capital Needs
CapitalCapital: any form of wealth employed to : any form of wealth employed to produce more wealthproduce more wealth
Fixed capitalFixed capital: to purchase a company’s : to purchase a company’s permanent or fixed assets such as land, permanent or fixed assets such as land, buildings, computers, and equipmentbuildings, computers, and equipment
Working capitalWorking capital: to support a business’s : to support a business’s short-term operations short-term operations
Growth capitalGrowth capital: to finance a company’s : to finance a company’s growth or its expansion in a new growth or its expansion in a new direction direction
Equity vs Debt CapitalEquity vs Debt Capital Equity capitalEquity capital: :
represents the represents the personal investment personal investment of the owner (s) of a of the owner (s) of a companycompany
Debt capitalDebt capital: the : the financing that a financing that a small business small business owner has borrowed owner has borrowed and must repay with and must repay with interest interest
Sources of Equity CapitalSources of Equity Capital Personal savingsPersonal savings Friends and family Friends and family
membersmembers AngelsAngels PartnersPartners Corporate venture Corporate venture
capitalcapital Venture capital Venture capital
companiescompanies Public stock salePublic stock sale
AngelsAngels Private investorsPrivate investors, wealthy individuals, , wealthy individuals,
entrepreneurs themselves, who provide entrepreneurs themselves, who provide money in exchange for equity stakesmoney in exchange for equity stakes
Ranging from $10,000 to $2MRanging from $10,000 to $2M Every year: 230,000 angels , $23 B, Every year: 230,000 angels , $23 B,
50,000 companies50,000 companies Average: 10% of opportunities, 2 Average: 10% of opportunities, 2
investments per year, $80,000 in 3.5 firmsinvestments per year, $80,000 in 3.5 firms Angel networksAngel networks: 200: 200 Patient money Patient money
Venture Capital CompaniesVenture Capital Companies
$3-10M$3-10M Competent Competent
managementmanagement Competitive edgeCompetitive edge Growth industryGrowth industry Viable exit strategyViable exit strategy Intangible factorsIntangible factors
Public Stock SalePublic Stock Sale
Advantages Advantages Ability to raise large amounts of Ability to raise large amounts of
capitalcapital Improved corporate imageImproved corporate image Improved access to future financingImproved access to future financing Use of stock for acquisitionsUse of stock for acquisitions Listing on a stock exchangeListing on a stock exchange
Public Stock SalePublic Stock SaleDisadvantagesDisadvantages Dilution of ownershipDilution of ownership Loss of controlLoss of control Loss of privacyLoss of privacy Reporting to SECReporting to SEC Filing expensesFiling expenses Accountability to shareholdersAccountability to shareholders Pressure for short-term performancePressure for short-term performance Demands of time and timingDemands of time and timing
Debt FinancingDebt Financing Commercial banksCommercial banks Non-banksNon-banks Federally-Federally-
sponsored sponsored programsprograms
State and Local State and Local Development Development ProgramsPrograms
Internal methods of Internal methods of financingfinancing
Commercial BanksCommercial Banks Short-term loansShort-term loans
Commercial loansCommercial loans
Lines of creditLines of credit
Floor-planningFloor-planning Intermediate and Intermediate and
long-term loanslong-term loans
Installment loanInstallment loan
Term loanTerm loan
Non-Bank SourcesNon-Bank Sources Asset-based lendersAsset-based lenders Vendor financingVendor financing Equipment suppliersEquipment suppliers Commercial finance companiesCommercial finance companies Savings and loan associationsSavings and loan associations Stock brokerage housesStock brokerage houses Insurance companiesInsurance companies Credit unionsCredit unions BondsBonds Private placementsPrivate placements Small business investment companiesSmall business investment companies Small business lending companiesSmall business lending companies
Federally Sponsored Federally Sponsored ProgramsPrograms
Economic Development AdministrationEconomic Development Administration Department of Housing and Urban DevelopmentDepartment of Housing and Urban Development Department of Agriculture’s Rural Cooperative Department of Agriculture’s Rural Cooperative
ServiceService Small Business Innovation Research ProgramSmall Business Innovation Research Program Small Business Technology Transfer ProgramSmall Business Technology Transfer Program Small Business AdministrationSmall Business Administration
Small Business Small Business AdministrationAdministration
Low Doc Loan ProgramLow Doc Loan Program SBA Express ProgramSBA Express Program 7A Loan Guaranty Program7A Loan Guaranty Program CAPLine ProgramCAPLine Program Loans Involving International TradeLoans Involving International Trade Section 504 Certified Development Section 504 Certified Development
Company ProgramCompany Program Microloan ProgramMicroloan Program Prequalification Loan ProgramPrequalification Loan Program Disaster LoansDisaster Loans
State and Local Loan State and Local Loan Development ProgramsDevelopment Programs
Capital access programsCapital access programs: encourages : encourages lending institutions to make loans to lending institutions to make loans to businesses that do not qualify for businesses that do not qualify for traditional financing because of higher traditional financing because of higher riskrisk
Revolving loan fundsRevolving loan funds: offered by : offered by communities that combine private communities that combine private and public funds to make loans to and public funds to make loans to small businesses, often at below-small businesses, often at below-market interest ratesmarket interest rates