1. Non-Equity Financing for the Company

2. Using FRICTO Framework  Determine how to fund the business Seek Debt Use Equity

3. The Entrepreneurial Funding Problem  Demand for small-business financing is greater than supply  50% of firms begin with less than $5000 in capital  Funded by owner, family members, or friends  Thus most companies start under funded and stay that way

4. The Entrepreneurial Funding Problem  Equity is hard to find for small businesses  Debt is hard to find (Loans)  Companies requesting funds often are under three years old and considered a risk

5. Five Stages of Financial Development  Start-up Most difficult period for obtaining funds  Development Stage  Expansion Stage  Growth Stage  Public Offering

6. Small Firms vs Larger Firms  Small firms (under 100 Employees) 26 % had line of credit 9% had financial leases 6% had mortgage loans 14% had equipment loans 24 % had motor-vehicle loans

7. Small Firms vs Larger Firms  Larger Firms 60% had a line of credit 30% had financial leases 19% had mortgage loans 29% had equipment loans 26% had motor vehicle loans

8. Banks  37% of these funds for small firms comes from commercial banks  Other suppliers include Finance companies Leasing companies Other non-financial institutions

9. Non-institutional Financing  First choice  Personal Funds  Family and Friends  Supplier financing  Seller financing  Business Incubators  Franchises  Joint ventures

10. Personal Resources  Includes Family and Friends  Are the funds sufficient?  Can they withstand the possible loss?  How will loss effect relationships?

11. Supplier Financing  Supplied through generous payment terms or direct loans.  Non-financial assistance Management Consulting Introduction to potential customers

12. Seller Financing  Equipment sellers will finance a sale by accepting payments and taking a lien on the property.  Buying a business, seller may want to stay involved and offer a payment plan

13. Business Incubator  A place that you can rent space to run your business  Utilize the group resources  Share administrative supports and staff  Incubators in PA Incubators in PA

14. Franchising  Agencies that assist with evaluating you for a specific franchise  Purchasing an existing franchise  Franchise Opportunities Franchise Opportunities  Top 500 Top 500

15. Joint Venture and Strategic Alliances  Developing a new market  Developing a new product or technology  Sharing complimentary technology  Accessing a distribution network  Sharing in the execution of a contract  Accessing capital

16. Co-Branding  Two or more companies create an informal partnership  Resort and Airline offer a vacation package  Share of advertising, increase marketability

17. Non-Governmental Institutional Funding  Commercial Banks  Credit-card Companies  Thrifts  Commercial Financing Companies

18. Commercial Bank Funding  Credit Card Loans  Commercial Banks Short-term loans Lines of credit Floor plans Construction loans Long-term loans Real-estate loans Letters of credit

19. Finding The Right Bank  Most people look to their primary bank  Types of banks include Money-center banks Super-regional bank Regional bank Community bank

20. The Loan Application Process  Explain the business strategies  Identification of the borrower  Identification of the loan request and its timing  Uses for funds  Other sources of funds  Cash flow projections  Collaterial

21. Six C’s of Credit  Character  Cash Flow  Capital  Capacity  Collateral  Credit History

22. Common Reasons Loans are Denied  Incomplete loan proposal  Unsupported cash flow projections  Inexperienced Management  Ability to repay the loan  Unrealistic revenue projections  Unrealistic expense projections  Underestimated Capital needs  Lack of adequate collaterial

23. After The Loan Is Approved  Commitment Letter  Loan Agreement  Promissory Note  Security Agreement

24. Loan Agreement  The amount of loan  Repayment schedule  Restrictive Covenants (2 Kinds)  Company’s representation  Special Conditions  Closing fees  Insurance  Default conditions  How to fix default

25. Restrictive Covenants  Negative covenants What you can not do without banks approval  Affirmative covenants Actions the company must take

26. Promissory Note  Contains Key provisions of the loan Interest rate Term of the loan Repayment schedule When payment is late Default description and remedy

27. Security Agreement  Details the lender’s interest in a specific piece of collaterial  Also filed with the state

28. Other Non-Governmental Funding  Thrifts (Savings and Loan) Better service Better pricing Relaxed credit Specialized in mortgages

29. Commercial Finance Loans  Easier loan to obtain  Commercial Finance Association Commercial Finance Association

30. Factoring  Buys the company’s receivables at a reduced price  Recourse Agreement Company must buy back unsold products  Non-recourse Agreement Products are the property of the factoring agent

31. Factoring Advantages  Accelerate cash flow  Not dependent on credit of company  Reduce debt need on balance sheet  Reduce staff need to move product

32. Equipment Leasing  Operating Leasing Lessee can return equipment at any time with proper notice Lease payments are treated as operating expense  Finance leasing Can not cancel lease without penalty Show as a liability on Balance sheet  Advantages

33. Government Financing  SBA (Small Business Administration) Uses Private lenders to manage loans Classified as  Regular – SBA controls approval of the loan  Certified – Heavily involved in SBA loans  Preferred – Chosen by SBA has among the best lenders Offers both long term and short term loans through various programs

34. SBA Programs  7(a) Guaranteed Loans Good Character, management, expertise, and commitment Contributing Funds Feasibility plan Investment in the business Collaterial

35. SBA Programs  Special 7(a) CAPLines Program – Meet short term and season work capital loans Export Working Capital – Working capital needs of Business exporter International Trade Loan – Those involved in international trade DELTA - For small businesses affected by defense cuts

36. SBA Programs  MicroLoan Program Focuses on non-profit organizations Loan money is used to lend to other small businesses Typically small loans up to $35,000

37. SBA Programs  504 Certified Development Company Program Loan from a private sector lender No collateral required  Small Business Administration Small Business Administration

38. State and Local Government  Pennsylvania Economic Development Pennsylvania Economic Development  CREDC CREDC  SEDA-COG SEDA-COG  Harrisburg - Mayor's Economic Development Office Harrisburg - Mayor's Economic Development Office