Financing Alternatives

FUNDING SOURCES

Personal Resources

Family and Friends

Banks

Small Business Administration

Non-traditional Sources

Outside Investors

A combination of the above

Use the right tool for the job ….

Understand the implications of using different sources

Don’t buy a car on your credit card (Obvious, right?)

Source FOR AGAINST

Personal Resources

SAVINGS Independence Risk of Loss Opportunity Cost

CREDIT CARDS Convenient Very short term Personal Credit Risk

HOME EQUITY Somewhat inexpensive Long Term Lose your home?

Family and Friends

Who needs a lighthouse in the daytime?

Banks

Banks have constraints, limits on Loans and will probably not lend you enough.

Bankers are not supposed to take risks.

Requirements & Features of Bank Loans

Trading History. Hard for start-ups

Usually looking for 3 years in business & history

Business must usually be profitable

There must be adequate Collateral

Sufficient measurable Cash flow to repay loan

Comparatively inexpensive

Owners credit history and financial strength is important

What is the purpose of the loan?

Financial Statements

Fixed Loan Amount

An SBA Loan is a bank Loan guaranteed by Govt.

Different SBA programs

Small Business Administration

Different SBA programs

An SBA Loan is a bank Loan guaranteed by Govt.

Non-traditional Sources

Sale of Shares in business to outsiders Loss of control

Venture Capital Large amounts, loss of control

Preferred Stock Paying fixed amounts, voting issues

Factoring, also known as Accounts Receivable Financing

Grows with you, flexible, easy, based on value of sales

Asset-based lending Based on fluctuating values

Is the sale of invoices for sales made to customers

Security rests on the credit-worthiness of customers

Excellent tool to finance growth

Outsourcing of Receivables function

Sales volume determines extent of financing

Protects against bad debts

Finances start-ups and established businesses

The financial strength of business and owner is not a deciding point

Allows for outsourcing of Receivables function

Does not affect control

Features of Factoring

ASSETS LIABILITIESCash $80,000 Payables $60,000

Receivables $100,000 Loan from bank $80,000

Current Assets $180,000 Current Liability $140,000

Plant $100,000 Stock $50,000Accrued Income $90,000

Total Assets $280,000 Total Liability & Equity $280,000

Balance Sheet & Off Balance Sheet

ASSETS LIABILITIESCash $80,000 Payables $60,000

Receivables $20,000

Current Assets $100,000 Current Liability $60,000

Plant $100,000 Stock $50,000Accrued Income $90,000

Total Assets $200,000 Total Liability & Equity $200,000

100 : 60 Liabilities are covered 1 : 66

180 : 140 Traditional 1 : 28

Why wait 30 to 90 days for your receivables?

Factor your invoices to free up working capital.

www.AberdeenFunding.com