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Sources of Capital

Sources of Capital. Considerations. Debt v. Equity Debt Interest Short-term v. Long-term Equity Ownerships Internal v. External Sources Internal Most frequently used External Three issues. Sources of Capital. Personal Funds “Least expensive” Perception to investors

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Sources of Capital

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  1. Sources of Capital

  2. Considerations • Debt v. Equity • Debt • Interest • Short-term v. Long-term • Equity • Ownerships • Internal v. External Sources • Internal • Most frequently used • External • Three issues

  3. Sources of Capital • Personal Funds • “Least expensive” • Perception to investors • Family & Friends • Lower uncertainty • “Business relationship” • Commercial Banks

  4. Commercial Banks • Types of Bank Loans • Accounts Receivable Loans • Factoring • Inventory Loans • 50% of value • Trust receipts • Equipment Loans • 50-80& of value • Sales-leaseback financing • Lease financing • Real Estate Loans • 75% of value

  5. Commercial Banks • Cash Flow Financing • Installment loans • 30-40 days • Straight commercial loans • 30-90 days • L-T Loans • Character Loans

  6. Commercial Banks • “To loan, or not to loan” • Loan officers or loan committees • What are they looking at? • Five C’s • Character • Capacity • Capital • Collateral • Conditions

  7. SBA Role • Main purpose • $150,000 or lower • Guarantee 85% of loan • $150,000- $1 million • Guarantee 75% of loan • 504 Loan Program • SBA Microloan

  8. Research & Development Limited Partnerships • What is it? • Major elements • Contract • Limited partners • Sponsoring partners

  9. Research & Development Limited Partnerships • Procedure • Funding stage • Development stage • Exit stage • Equity partnership • Royalty partnership • Joint venture • Benefits • Costs

  10. Government Grants • Small Business Innovation Research Program • Three phases • Procedure • Qualifications • Small Business Technological Transfer • Budgets over $1 billion • Differences between SBIR and SBTT

  11. Private Placement & Private Investors • Goal of Investors • Private Offering • Regulation D • Entrepreneur’s responsibilities • Rule 504 • $500,000 to any number • Rule 505 • $5 million to any 35 investors, unlimited accredited investors • Rule 506 • Unlimited number of securities to 35 investors and unlimited accredited investors

  12. Bootstrap Financing • Problems with External Financing • What is bootstrap financing? • External financing AFTER internal financing

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