Equity Financing

Equity Financing

If your aggregation has a aerial allotment of debt to disinterestedness (what you owe compared to what you

own), you will acquisition it difficult to get debt costs and you will apparently charge to seek equity

investment for added funds. What this agency artlessly is that you will barter a assertive percentage

of your aggregation for a specific bulk of money to be injected into the company.

Tech Tip: Interest Ante Applicable to SBA Guaranteed Loans:

Tech Tip:

Interest Ante Applicable to SBA Guaranteed Loans:

Note: Absorption ante are adjourned amid the borrower and the lender but

are accountable to SBA maximums, which are called to the Prime Rate. Interest

rates may be anchored or variable. Anchored amount loans of $50,000 or added charge not

exceed Prime Plus 2.25 percent if the ability is beneath than 7 years, and Prime

Plus 2.75 percent if the ability is 7 years or more.

Loans amid $25,000 and $50.000: Maximum ante charge not beat Prime

Plus 3.25 percent if the ability is beneath than 7 years, and Prime Plus 3.75

percent if the ability is 7 years or more.

Loans of $25,000 or less: Maximum absorption amount charge not beat Prime Plus

4.25 percent if the ability is beneath than 7 years, and Prime Plus 4.75 percent,

if the ability is 7 years or more.

• For accepted Prime rates, appointment http://www.bankrate.com

• For added advice on SBA programs, visit

http://www.sba.gov/financin g

Streamlined Applications and Approvals

Streamlined Applications and Approvals
There are several options available to lenders that help streamline delivery of the SBA’s loan
guaranty.
1. LowDoc Loan Program: LowDoc is one of the SBA’s most popular programs.
Once you have met your lender’s requirements for credit, LowDoc offers a simple,
one page SBA application form and rapid turnaround for loans of $150,000 or less.
SBA will guarantee up to 85% of the loan amount. The loans should be adequately
secured. Business assets are usually pledged and personal guarantees of the principals
are required. The applicant completes the front of a one-page SBA application; the
lender completes the back. The lender requires additional information. The same
interest rate rules apply as in the 7(a) program. To be eligible, business must have
average annual sales for the past three years not exceeding $5 million and must have
fewer than 100 employees. Business start-ups are also eligible for the LowDoc Loan
Program.
2. SBA Express: This program makes capital available to businesses seeking loans of
up to $350,000 without requiring the lender to use the SBA process. Lenders use their
existing documentation and procedures to make and service loans. The SBA
guarantees up to 50 percent of a SBA Express loan. Your local SBA office can
provide you with a list of SBA Express lenders.
3. Certified and Preferred Lenders Program: The most active and expert SBA
lenders qualify for the SBA’s Certified and Preferred Lenders Program. Participants
are delegated partial or full authority to approve loans, which results in faster service.
Certified lenders are those that have been heavily involved in regular SBA loanguaranty
processing and have met certain other criteria. Preferred lenders are chosen
from among the SBA’s best lenders and enjoy full delegation of lending authority. A
list of participants in the Certified and Preferred Lenders Program may be obtained
from your local SBA office.
4. 7(M) Micro Loan Program: The MicroLoan Program provides small loans up to
$35,000. Under this program, the SBA makes funds available to nonprofit
intermediaries; these, in turn, make the loans. The average loan size is $10,500.
Completed applications usually are processed by an intermediary in less than one
week. This is a pilot program available at a limited number of locations.
Micro loans may be used to finance machinery, equipment, fixtures and leasehold
improvements. They may also be used to finance receivables and for working capital.
They may not be used to pay existing debt. Depending on the earnings of your
business, you may take up to six years to repay a microloan. Rates are pegged at no
more than 4 percent over the prime rate. There is no guaranty fee. Each nonprofit
lending organization will have its own collateral requirements, but must take as
collateral any assets purchased with the microloan. Generally the personal guaranties
of the business owners are also required.
5. 504 Certified Development Company: CDCs are nonprofit corporations set up
to contribute to the economic development of their communities or regions. They
work with the SBA and private-sector lenders to provide financing to small
businesses. The program is designed to enable small businesses to create and retain
jobs; the CDC’s portfolio must create or retain one job for every $50,000 of
debenture proceeds provided by the SBA. They provide small businesses with 10 or
20-year financing for the acquisition of land and buildings, machinery and equipment
or for constructing, modernizing, renovating or converting existing facilities. To be
eligible, the business must operate for profit. Tangible net worth must not exceed $7
million and average net income must not exceed $2.5 million for the past two years.
The maximum loan amount is generally $1,500,000. The amount may go up to $2
million if the project meets public policy goals (i.e., business district revitalization,
expansion of export, expansion of minority business). Collateral may include a
mortgage on the land and the building being financed. Personal guarantees of
principals are required. SBA will take business assets as collateral. Interest is set at
second TD rate based on the current market rate for 5- and 10-year U.S. Treasury
Bonds and is generally below market rate.

Debt Financing

Debt Financing

Debt costs is about acquired from one of two sources. It can appear either from a nonprofessional

source such as a friend, relative, chump or aide or from a acceptable lending

institution such as a bank, bartering accounts aggregation or, on appropriate occasions, anon from the

U.S. Baby Business Administration (SBA).

1. Friends or Relatives: Borrowing from a acquaintance or about is about the most

readily accessible source, abnormally back the basic requirements are smaller. This is

frequently the atomic cher in agreement of dollars, but may become the best cher in terms

of claimed relations if your claim agenda is not appropriate or your adventure does not

work out. This access should be approached with abundant caution!

2. Angel Programs: For abate business owners, women and minorities, there has

been a growing trend against the development of "Angel" programs through business

organizations and companies specializing in baby business. Individuals and small

companies that appetite to advance abate amounts in able businesses are affiliated with

those companies and the two adjudge whether or not the accommodation will be made. This avenue

is still about new, but holds alike added affiance for the future.

3. Acceptable Lending Institutions: Banks, accumulation and loans and commercial

finance companies accept continued been the above sources of business financing, principally

as concise lenders alms appeal loans, melancholia curve of acclaim and single-purpose

loans for anchored assets.

102 18 Steps for Starting Your Business

You should be acquainted of the actuality that about all lending institutions are austere about

collateral requirements and may analytic crave accustomed businesses to provide

one-third of the disinterestedness bang and start-ups up to 50% or more. Again, as a borrower,

you will be appropriate to accept a business plan with able documentation

demonstrating a projected operating banknote breeze that will accredit you to accord (on time)

the accommodation with interest.

4. SBA Affirmed Loans: The SBA affirmed accommodation affairs is a accessory source

of financing. This advantage comes into comedy afterwards clandestine lending options accept been

denied. The SBA offers a array of accommodation programs to acceptable baby businesses that

cannot borrow on reasonable agreement from accepted lenders in the bulk needed

without authoritative help. Best of the SBA's business loans are fabricated by private

lenders and again affirmed by the Agency. Though it may not necessarily be easier to

be accustomed for an SBA affirmed loan, the agreement will acquiesce you to access a loan

with a best adeptness at bigger claim agreement and absorption rates, thereby reducing

your account payments and the antecedent accommodation burden.

a. 7(a) Affirmed Accommodation Program: This is the SBA’s primary accommodation program.

You can use a 7(a) accommodation to: aggrandize or clean facilities; acquirement machinery,

equipment, accessories and leasehold improvements; accounts receivables and augment

working capital; refinance absolute debt (with acute reason); finance

seasonal curve of credit; assemble bartering buildings; and/or acquirement acreage or

buildings.

Loan amounts of $100,000 or beneath accept an SBA agreement as aerial as 80%. All

other loans accept a 75% SBA guaranty. Currently, the best bulk for a

loan agreement is $1,500,000 (75% of $2 million). The boilerplate admeasurement accommodation is

$175,000 with an eight-year maturity. The 7(a) accommodation affairs is accessible to

businesses that accomplish for accumulation and authorize as baby beneath SBA admeasurement standard

criteria.

You abide a accommodation appliance to a lender for antecedent review. If the lender approves

the accommodation accountable to an SBA guaranty, a archetype of the appliance and a credit

analysis are forwarded by the lender to the abutting SBA office.

The SBA looks for acceptable character, administration expertise, banking assets to

operate the business, a achievable business plan, able disinterestedness or advance in the

business, acceptable collateral, and the adeptness to accord the accommodation on time from the

projected operating banknote flow.

After SBA approval, the lending academy closes the accommodation and disburses the

funds; you accomplish account accommodation payments anon to the lender. As with any loan,

you are amenable for repaying the abounding bulk of the loan.

Generally, liens will be taken on assets financed by SBA proceeds, and the

personal agreement of the arch owners and/or the CEO are required. The

borrower charge agreement acceptable assets, to the admeasurement that they are reasonably

available, to abundantly defended the loan. However, in best cases, a accommodation will not be

declined by SBA area bereft accessory is the alone abortive factor. The

lender sets the bulk of interest: loans beneath 7 years, best prime +2.25%; 7

Chapter 16 / Accounts Your Business 103

years or more, best 2.75% over prime; beneath $50,000, ante may be slightly

higher. The breadth of time for claim depends on the use of gain and the

ability of the business to repay: usually bristles to ten years for alive basic and up

to 25 years for anchored assets.

b. CAPLines: Eligibility and absorption bulk rules are the aforementioned as for 7(a) guaranteed

loans. It is for the costs of assets. The primary accessory will be the short-term

assets financed by the loan. SBA will agreement up to 75% of loans above

$150,000 (85% on loans of $150,000 or less). There are bristles concise workingcapital

loan programs for baby businesses beneath CAPLines: (1) Melancholia Line, (2)

Contract Line, (3) Builders Line (4) Standard Asset-Based Line, and (5) Small

Asset-Based Line. The asset-based curve charge revolve.

c. International Trade Accommodation Program: Applicants charge authorize either that the

loan gain will decidedly aggrandize absolute consign markets or advance new

ones, or that the appellant is abnormally afflicted by acceptation competition. SBA can

guarantee 75% of an bulk up to $2,000,000 in accumulated working-capital and

fixed-asset loans. The lender charge booty a first-lien position on items financed.

Only accessory amid in the United States and its territories and backing is

acceptable as accessory beneath this program. Additional accessory may be required

including claimed guaranties, accessory liens or items that are not financed by

the accommodation proceeds. The gain of the accommodation may not be acclimated for debt repayment.

Fees and absorption ante are the aforementioned as for 7(a) loans.

d. Consign Alive Basic Affairs (EWCP): This affairs is for exporters

seeking concise alive capital. The SBA will agreement 90 percent of the

principal and interest, up to $1,500,000. Back an EWCP accommodation is accumulated with an

International Trade Loan, the SBA’s acknowledgment can go up to $1.75 million. The

EWCP uses a one-page appliance anatomy and automated documentation, and

turnaround is usually aural 10 days. You may additionally administer for a letter of

prequalification from the SBA. Businesses charge accept operated for the accomplished 12

months, not necessarily in exporting, above-mentioned to filing an application. Absorption rates

are not adapted by the SBA and the lender is not bound to the ante defined for

regular 7(a) loans.

e. Aegis Accommodation and Abstruse Abetment (DELTA) Program: The

DELTA Affairs is accessible to advice defense-dependent baby business concerns

adversely afflicted by aegis cuts to alter into the bartering market. The

program provides both banking and abstruse assistance. A collective accomplishment of the SBA

and the Department of Defense, DELTA offers about $1 billion in gross lending

authority. At atomic 25% of the business’ revenues from the actual preceding

year charge accept appear from aegis accompanying affairs and the borrower charge show

that he will actualize or absorb one job per $50,000 of SBA assistance. Accommodation amounts

are up to $2,000,000. The SBA processes, guarantees and casework DELTA loans

through the regulations, forms, and operating belief of the 7(a) Affairs and the

504 Certified Development Aggregation Program. Abstruse abetment is provided

through SBDCs, SCORE, added federal agencies, and added abstruse and

management abetment providers.

Tech Tip: Search the Internet for Angel Investors

Tech Tip:
Search the Internet for Angel Investors
Several organizations exist that serve as an intermediary between Angel
investors and business owners. Business owners can submit their business
plans, which will then be matched and submitted to prospective investors
with funding interests in specific plans. For a list of intermediary networks
and lists of Angel investors, use the following key words in a search on the
Internet: "Angel Investors"

What are the Sources Available to You?

What are the Sources Available to You?
I get calls almost every day asking for direction to sources of start-up capital. Sources of financing
available to prospective and expanding businesses fall into two broad categories, which we will
discuss in the remainder of the chapter:
• Debt financing (dollars borrowed)
• Equity financing (ownership dollars
injected into the business)

How Much Money Do You Need – and When Do You Need It?

How Much Money Do You Need –
and When Do You Need It?
If you have decided that you will need additional financing, you will then need to carefully assess
your needs and determine not only the amount you need, but when you will need it. Many business
owners overestimate or underestimate their capital requirements and/or do not time their financing
to the best advantage. Either can lead to serious problems.
The first thing you need is a realistic business plan and one that you intend to follow as closely as
possible. (Does this sound repetitious?) The only way to look at every aspect of your business is
through the planning process. It will force you create an organizational plan and a marketing plan
and quantify your concepts through the development of projected financial statements whose
numbers can then be analyzed and used in the decision making process. Those projections give you
an educated estimate of your financial needs and tell you when they will most likely occur. Your
business plan will answer such questions as:
• What are my most critical needs?
• If I need the money for immediate operating capital, how much will I need to
operate my business until it becomes self-sustaining?
• If I need the money to buy fixed assets for my business, has my research
shown that I can reach the target market that will justify the purchase of those
assets? If not now, when would be the optimum time to add those assets?
• If I need the money for marketing, what are the most effective ways to reach
my target market? How much will it cost to advertise? Will the increased
marketing be reflected in even higher increases in revenues? According to
my industry trends, what are the best selling periods and when will I need
financing in order to have the lead time to advertise for the best results?