Exam 11: Sources of Capital

Bootstrap financing involves using any possible method,such as discounts for volume purchasing,to conserve cash.

Obtaining funds from private investors:

Equity financing requires collateral.

The most frequently used source of funds for start-ups is:

Funds obtained from ____ are the least expensive in terms of cost and control.

Installment loans are typically given for a period of 30-40 days.

Long-term debt financing is normally used to provide working capital to finance inventory,accounts receivable,and operation of the business.

Typically,debt financing requires:

SBA guaranteed loans are guaranteed for 100 percent of the loan amount.

Explain and define the four types of asset backed loans. A.Accounts Receivable - using A/R as collateral a bank may finance up to 80% of accounts receivable balance,can be factored (bank incurs risk of collection therefore more expensive)or unfactored (entrepreneur incurs risk of collection. B.Inventory -Inventory is used as collateral.Usually,the finished goods inventory can be financed for up to 50 percent of its value.Trust receipts are a unique type of inventory loan used to finance floor plans of retailers,such as automobile and appliance dealers.In trust receipts,the bank advances a large percentage of the invoice price of the goods and is paid on a pro rata basis as the inventory is sold. C.Equipment - Equipment can be used to secure longer-term financing,usually on a 3- to 10-year basis.When new equipment is being purchased or presently owned equipment is used as collateral,usually 50 to 80 percent of the value of the equipment can be financed depending on its salability.In the sale-leaseback arrangement,the entrepreneur "sells" the equipment to a lender and then leases it back for the life of the equipment to ensure its continued use. D.Real estate - This mortgage financing is usually easily obtained to finance a company's land,plant,or another building,often up to 75 percent of its value.

Research and development limited partnerships provide small businesses funds from investors looking for tax shelters.

Bootstrap financing helps avoid some of the problems of external capital like decreases in flexibility and increased impulse to spend.

When using private placement funding the entrepreneur must disclose all information as accurately as possible.

Explain what problems an entrepreneur might avoid by using bootstrap financing instead of outside capital. A.Outside capital takes between 3-6 months to raise,if it can be raised at all.This process distracts the entrepreneur from other important activities. B.Outside capital often decreases a firm's drive for sales and profits. C.The availability of capital increases the impulse to spend.It can cause a company to hire more staff before they are needed and to move into more costly facilities. D.Outside capital can decrease the company's flexibility.This can hamper the direction,drive,and creativity of the entrepreneur. E.Outside capital may cause disruption and problems in the venturE.Capital is not provided without the expectation of a return,sometimes before the business should be giving onE.This emphasis on short-term performance can be at the expense of the long-term success of the company.

Which of the following types of credit does not require the pledging of an individual's collateral or a cosigner?

Outside capital should be sought only after all possible internal sources of funds have been explored.

When the bank advances a large percentage of the invoice price of goods and is paid on a pro-rata basis when inventory is sold this is called:

In which phase of the SBIR grant process are funds used to create a prototype of a product or service?

Equity partnerships,royalty partnerships,and joint ventures are used in the ___________ stage of limited partnerships to reap the benefits of the effort.

What type of cash flow financing loan can make funds available for up to 10 years?