Post on 28-Nov-2014
description
Sources of Finance for Small Business
“Alternative Finance”
Financing Small Business
Overview
Who needs financing and why
Where do companies go first
Where do companies go next
What can new companies expect
What alternatives exist
Why is Financing Important?
Starting a new business
Growing a business
Initial Financing
Where do you go first?
Your own savings
Your own retirement savings
Your friends
Your own home equity
Other funds
When Growth Exceeds Capital
Visit your banker
Apply for a home-equity line of credit
Apply for a community development grant
or loan
Apply for an SBA loan
Apply for a business loan
What Are Bankers Looking For?
Business Plan
Sources of Repayment
Company Balance Sheet
Company Income Statement
Personal Statement of Net Worth
Personal and company tax returns
ASSETS
What are the Alternatives?
Angel Investors or Venture Capital Companies
Asset-Based Lenders
Purchase-Order Financing Companies
Equipment Leasing Companies
Factoring Companies
Invoice Discounting Companies
Angel Investors or Venture Capital Companies
Who do they finance?
New companies with cutting-edge idea or
product
Newer companies with business plan
Angel Investors or Venture Capital Companies
What are they looking for?
An opportunity to make a good return on
investment
Usually will want an equity position and
many times a management or controlling
position
Sometimes will finance with loans
Peer-to-Peer Lending
Asset-Based Lenders
Have to have assets!
Real estate
Machinery
Patents or trademarks
Inventory
Receivables
All of the above
Asset-Based Lenders
What will it cost?
The amount charged will depend on the
amount and quality of your assets
Typically it will be more than a bank
would charge
Remember, your bank has declined to
finance your business
What is the opportunity you have?
Purchase Order Financing Companies
How does it work?
Obtain official Purchase Order from your
customer
Customer has to have good credit
Find a reliable supplier/manufacturer for
your product, domestic or foreign
Place order with supplier/manufacturer
Purchase-Order Financing Companies
Who do they finance?
New manufacturers
Established manufacturers
Small and large companies
Companies with domestic-sourced or
foreign-sourced manufacturing
Equipment Leasing Companies
How does it work?
Use this when you need equipment to manufacture
goods
Or for office equipment
Leasing company purchases equipment and “rents” it
to you
Opportunity to purchase equipment at end of lease
period
Factoring Companies
What is factoring?
Loan money using accounts receivable as collateral
Usually with recourse to company and company owners
Usually requires that all receivables be pledged
With or without notification to your customer
Manages collection of accounts
Speeds up cash flow
Factoring Companies
What does it cost?
How much advanced depends on credit quality
of A/R
Interest rate depends on credit quality of A/R
Fees imposed for collection service
Invoice Discounting Companies
How Does It Work?
Similar to factoring companies
Recourse or non-recourse
Notification to customer
Purchases all or some of the invoices
Credit quality of your company is less important
Credit quality of customer is most important
Invoice Discounting Companies
What does it cost?
Fund 90% of face value of invoice
Cost depends on time outstanding, computed daily
Flexibility reduces cost
Use it as you need it
Quick decision and funding.
Summary
SBA loans will be the least expensive, but slow to fund
Traditional bank financing next cheapest
Different types of alternative finance
Choose alternative depending on need, cost, and position
in company history
Most important: What is Your Opportunity?
The $64,000 Question
How do You Find These
Alternative Financing Companies
Yellow Pages
Other business associates
The Internet
Internet Resources
Angel Investors
www.angelcapitalassociation.org
Asset-Based Lending
http://www.cfa.com/What_is_ABL/what_is_abl.htm
Peer-to-Peer Lendingwww.prosper.com, www.lendingtree.com, www.zopa.com
More Internet Resources
Search for These Terms
Small Business Funding
Asset Based Lenders
Equipment Leasing Companies
Purchase Order Financing
Factors
Invoice Discounters