Source of Financing
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Transcript of Source of Financing
7/29/2019 Source of Financing
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Sources of Financing:
Debt and Equity
If you don’t know who the fool is onthe deal, it’s you!...Michael Wolff
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Planning for Capital Needs
Capital: any form of wealth employed toproduce more wealth
Fixed capital: to purchase a company’spermanent or fixed assets such as land,buildings, computers, and equipment
Working capital: to support a business’sshort-term operations
Growth capital: to finance a company’sgrowth or its expansion in a new direction
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Equity vs Debt Capital
Equity capital:represents thepersonal investment
of the owner (s) of acompany
Debt capital: thefinancing that a small
business owner hasborrowed and mustrepay with interest
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Sources of Equity Capital Personal savings
Friends and familymembers
Angels Partners
Corporate venturecapital
Venture capitalcompanies
Public stock sale
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Angels
Private investors, wealthy individuals,entrepreneurs themselves, who provide moneyin exchange for equity stakes
Ranging from $10,000 to $2M Every year: 230,000 angels , $23 B, 50,000
companies
Average: 10% of opportunities, 2 investments
per year, $80,000 in 3.5 firms Angel networks: 200
Patient money
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Venture Capital Companies
$3-10M
Competent
management Competitive edge
Growth industry
Viable exit strategy Intangible factors
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Public Stock Sale
Advantages
Ability to raise large amounts of capital
Improved corporate image
Improved access to future financing
Use of stock for acquisitions Listing on a stock exchange
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Public Stock Sale
Disadvantages
Dilution of ownership
Loss of control
Loss of privacy
Reporting to SEC
Filing expenses
Accountability to shareholders
Pressure for short-term performance
Demands of time and timing
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Debt Financing
Commercial banks
Non-banks
Federally-sponsored
programs
State and LocalDevelopment
Programs Internal methods of
financing
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Commercial Banks
Short-term loans
Commercial loans
Lines of creditFloor-planning
Intermediate andlong-term loans
Installment loan
Term loan
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Non-Bank Sources Asset-based lenders
Vendor financing
Equipment suppliers
Commercial finance companies
Savings and loan associations
Stock brokerage houses
Insurance companies
Credit unions
Bonds
Private placements
Small business investment companies
Small business lending companies
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Federally Sponsored Programs
Economic Development Administration
Department of Housing and Urban Development
Department of Agriculture’s Rural Cooperative Service
Small Business Innovation Research Program
Small Business Technology Transfer Program
Small Business Administration
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Small Business Administration Low Doc Loan Program
SBA Express Program
7A Loan Guaranty Program
CAPLine Program Loans Involving International Trade
Section 504 Certified Development CompanyProgram
Microloan Program
Prequalification Loan Program
Disaster Loans
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State and Local Loan
Development Programs Capital access programs: encourages
lending institutions to make loans to
businesses that do not qualify fortraditional financing because of higher risk
Revolving loan funds: offered bycommunities that combine private andpublic funds to make loans to smallbusinesses, often at below-market interestrates