EEE 4653 Venture Capital Exam 3 OSU
With Correct Questions And Answers |
Verified Solutions 2024
Debt Financings Pros - CORRECT ANSWERS--Predominantly no ownership dilution
--Except for Convertible Notes or Subordinated Note with "warrants"
-Typically a lower cost of capital
-Business income tax benefits (interest expense is tax deductible)
-Potential for "value add" lenders - Business Advise & Networking
--Tends to be Commercial or Community Bankers
-Larger number of providers/sources & types of funding
Debt Financings Cons - CORRECT ANSWERS--Personal Guarantees
-Fixed period repayment schedules regardless of business profits
-Lender can legally "force" business into bankruptcy
-Aggregate capital amounts oriented towards historical/current performance not future -
some form of underlying Collateral
-Use of Funds tends to be predominantly linked to business assets
Debt Financings Sources - CORRECT ANSWERS--Yourself
-Family/Friends
-Angels
-Banks (SBA)
-Foundations
SBA Loan Programs 7a Loan Program *(Applicable uses of funds)* - CORRECT
ANSWERS--Traditional working capital: Accounts Receivables, inventory, materials
-Short-term working capital: contract performance, construction financing, exports
-Purchase equipment, machinery, furniture, fixtures
-Purchase land and buildings
-Build or renovate a building
-Business expansion/growth
SBA Loan Programs 7a Loan Program (*Loan Amounts & Costs*) - CORRECT
ANSWERS--Maximum $5M (2012 avg. amount $337,730)
-Interest Rates (varies slightly based on loan balance & length)
--Prime rate + 2.75% for over seven years
-Upfront Fee on Guaranteed Loan Amount (varies based on loan balance & length)
--3% on loans over $150K and over one year
-Percentage SBA Guarantee
Up to 85% below $150K loan & up to 75% to $5M maximum
, SBA Loan Programs 7a Loan Program (*Repayment Terms*) - CORRECT ANSWERS--
Loan maturities "matched" to assets
--25 years on real estate, 10 years on equipment, 7 years on working capital
-Predominantly monthly amortization (limited interest only during startup/expansion)
-Predominantly no pre-payment penalty
-Collateral required
-Personal guarantees for all owners over 20%
SBA Loan Programs 7a Loan Program (Oklahoma Active SBA Banks) - CORRECT
ANSWERS--BancFirst
-Arvest
-JP Morgan Chase
Non-Bank/Bank Non-Traditional Debt Capital - CORRECT ANSWERS--Factoring
-Customer Financing
-Supplier Financing
-Purchase Order Financing
-Credit Cards
Non-Bank/Bank Non-Traditional Debt Capital *(Factoring)* - CORRECT ANSWERS--
Accounts Receivables "sold" at a discount (2% to 4%) to face value
-Typically expensive at an effective annualized 24% to 48% interest rate
-Business can "lose" control of customer relations
-Limit use to temporary capital solution
-Only higher gross margin businesses
Non-Bank/Bank Non-Traditional Debt Capital (*Customer Financing*) - CORRECT
ANSWERS--Typically partial prepayment & typically extremely attractive cost/term
-Normally requires limited customer product/service alternatives
-Risks "scaring" customers away due to perceived poor financial stability
Non-Bank/Bank Non-Traditional Debt Capital (*Supplier Financing*) - CORRECT
ANSWERS--Negotiate "extended" trade payment terms
-Typically limited to "special" incremental or large orders
Non-Bank/Bank Non-Traditional Debt Capital (*Purchase Order Financing*) -
CORRECT ANSWERS--Normally limited to quick (even incremental) inventory/product
sales cycles
-*Very* expensive capital at a 5% to 10% discount against corresponding Purchase
Order
Non-Bank/Bank Non-Traditional Debt Capital (*Credit Cards*) - CORRECT ANSWERS-
Wide cost range but normally considered a high debt cost
Debt Capital Preparation Suggestions - CORRECT ANSWERS--Strong personal credit
-Detailed Financial pro-forma statements
With Correct Questions And Answers |
Verified Solutions 2024
Debt Financings Pros - CORRECT ANSWERS--Predominantly no ownership dilution
--Except for Convertible Notes or Subordinated Note with "warrants"
-Typically a lower cost of capital
-Business income tax benefits (interest expense is tax deductible)
-Potential for "value add" lenders - Business Advise & Networking
--Tends to be Commercial or Community Bankers
-Larger number of providers/sources & types of funding
Debt Financings Cons - CORRECT ANSWERS--Personal Guarantees
-Fixed period repayment schedules regardless of business profits
-Lender can legally "force" business into bankruptcy
-Aggregate capital amounts oriented towards historical/current performance not future -
some form of underlying Collateral
-Use of Funds tends to be predominantly linked to business assets
Debt Financings Sources - CORRECT ANSWERS--Yourself
-Family/Friends
-Angels
-Banks (SBA)
-Foundations
SBA Loan Programs 7a Loan Program *(Applicable uses of funds)* - CORRECT
ANSWERS--Traditional working capital: Accounts Receivables, inventory, materials
-Short-term working capital: contract performance, construction financing, exports
-Purchase equipment, machinery, furniture, fixtures
-Purchase land and buildings
-Build or renovate a building
-Business expansion/growth
SBA Loan Programs 7a Loan Program (*Loan Amounts & Costs*) - CORRECT
ANSWERS--Maximum $5M (2012 avg. amount $337,730)
-Interest Rates (varies slightly based on loan balance & length)
--Prime rate + 2.75% for over seven years
-Upfront Fee on Guaranteed Loan Amount (varies based on loan balance & length)
--3% on loans over $150K and over one year
-Percentage SBA Guarantee
Up to 85% below $150K loan & up to 75% to $5M maximum
, SBA Loan Programs 7a Loan Program (*Repayment Terms*) - CORRECT ANSWERS--
Loan maturities "matched" to assets
--25 years on real estate, 10 years on equipment, 7 years on working capital
-Predominantly monthly amortization (limited interest only during startup/expansion)
-Predominantly no pre-payment penalty
-Collateral required
-Personal guarantees for all owners over 20%
SBA Loan Programs 7a Loan Program (Oklahoma Active SBA Banks) - CORRECT
ANSWERS--BancFirst
-Arvest
-JP Morgan Chase
Non-Bank/Bank Non-Traditional Debt Capital - CORRECT ANSWERS--Factoring
-Customer Financing
-Supplier Financing
-Purchase Order Financing
-Credit Cards
Non-Bank/Bank Non-Traditional Debt Capital *(Factoring)* - CORRECT ANSWERS--
Accounts Receivables "sold" at a discount (2% to 4%) to face value
-Typically expensive at an effective annualized 24% to 48% interest rate
-Business can "lose" control of customer relations
-Limit use to temporary capital solution
-Only higher gross margin businesses
Non-Bank/Bank Non-Traditional Debt Capital (*Customer Financing*) - CORRECT
ANSWERS--Typically partial prepayment & typically extremely attractive cost/term
-Normally requires limited customer product/service alternatives
-Risks "scaring" customers away due to perceived poor financial stability
Non-Bank/Bank Non-Traditional Debt Capital (*Supplier Financing*) - CORRECT
ANSWERS--Negotiate "extended" trade payment terms
-Typically limited to "special" incremental or large orders
Non-Bank/Bank Non-Traditional Debt Capital (*Purchase Order Financing*) -
CORRECT ANSWERS--Normally limited to quick (even incremental) inventory/product
sales cycles
-*Very* expensive capital at a 5% to 10% discount against corresponding Purchase
Order
Non-Bank/Bank Non-Traditional Debt Capital (*Credit Cards*) - CORRECT ANSWERS-
Wide cost range but normally considered a high debt cost
Debt Capital Preparation Suggestions - CORRECT ANSWERS--Strong personal credit
-Detailed Financial pro-forma statements
