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Borrowing to Fund

Business Growth
Robinson (Rob) Caro
Michael Dunn
TYPES !EY "SPECTS
#F F$%"%C$%G
Matching Offerings to the Needs of the Business
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Bank
Financin
g
&ine o' Credit
Ter( Debt &easing
Debt Financing #)tions
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Line of Credit
* Facilit+ a,ailable as needed o,er
the ter( o' the agree(ent
* #'ten ,ariable rates charged
* Re)a+(ent is interest onl+ or interest )lus )rinci)al
Fre-uentl+ used to 'und short.ter( wor/ing
ca)ital needs and une0)ected e0)enditures
Debt Financing #)tions
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Term-Debt
* &oan 'or a 'i0ed a(ount with
s)eci'ic re)a+(ent ter(s
* $nterest rates (a+ be 'i0ed or ,ariable
* Generall+ does not )ro,ide 'or borrowing
be+ond the initial a(ount
* Fre-uentl+ used to 'und asset ('acilit+
and e-ui)(ent) )urchases
Debt Financing #)tions . continued
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Leasing
Financing arrange(ent )ro,iding the right
to use an asset o,er a )eriod o' ti(e
Re-uires )a+(ents o,er the ter( o' the arrange(ent
Ma+ or (a+ not trans'er ownershi) o'
the asset at the end o' the lease ter(
Used b+ co()anies to 'ul'ill their asset
needs without signi'icant u)'ront in,est(ents
inherent in )urchase transactions
Debt Financing #)tions . continued
!EYS T# S1CCESSF1&
B#RR#2$%G
Optimizing the Chances of a Desired Outcome
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Be Pre)ared

Ea!uate "our business b" considering the fo!!o#ing$

%trengths and opportunities

&eaknesses and cha!!enges

'our current financia! situation and needs going


for#ard( be rea!istic( for start-up businesses) !enders
!ook at "our persona! financia!s

*ssemb!e information for presentation to prospectie


!enders + be it a bank or an a!ternatie ,micro- !ender
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Build an E''ecti,e Dialogue

Bui!d an open and honest dia!ogue$


.roide an understanding of the compan"/s current state and
ision for the future
Discuss ke" ob0ecties) ackno#!edging ke" risks and re!ated
remediation p!ans

1ain an understanding of the !ender/s !oan products or


a!ternatie so!utions and re!ated re2uirements
Start early: It usually takes more than one meeting to get
the best borrowing solution.
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3 Cs o' Credit
Character

3s the co!!atera! sufficient as a secondar" source of


repa"ment4 3f the co!!atera! must be !i2uidated) is the
rea!izab!e a!ue enough to repa" principa! and outstanding
interest) and
coer the bank/s administratie costs of !i2uidation4

&hat are the economic and market conditions that cou!d


impair the compan"/s abi!it" to serice the debt and repa"
the !oan4 Does the compan" recognize these risks and
hae p!ans to mitigate them4

Does the borro#er demonstrate a commitment to honor


his or her transactions and keep promises een under
aderse circumstances4
Ca)acit+
Conditions
Ca)ital
Collateral

Does the business demonstrate the capacit" to re-pa" the


!oan funds4 Does management hae a business p!an4
*re the p!ant and e2uipment sufficient4 *re marketing
and product de!ier" #e!! dee!oped4

Does the compan" hae sufficient net #orth to absorb


norma! business risk4
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The &oan "))lication

Ensure that the !oan app!ication is comp!ete and accurate

Core bank !oan app!ication information often inc!udes$

5istorica! business financia! information ,6 "ears-


Business and o#ner/s persona! ta7 returns ,6 'ears-

.ersona! Financia! %tatement


3nterim financia! statements of the business and its o#ner for the
current 8 prior "ear) a!ong #ith accounts receiab!e and pa"ab!e
aging reports
*!ternatie ,micro- !oan app!ication is simi!ar) but often a!!o#s
some f!e7ibi!it" + ask 2uestions9
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Sources o' Re)a+(ent
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Cash Flow Fro( #)erations .
4uestions to Consider
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Guarantor Su))ort Collateral5Securit+ .
4uestions to Consider
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