Funding sources

Question 1

What are the three funding sources?

Answer 1

1. Internal business
2. Equity
3. Debt

Question 2

What falls under internal business funding?

Answer 2

-Working capital “circulating capital”
-Fixed asset “capital”
-Fixed asset funding

Question 3

Difference between current assets and current liabilities
-Related: Factoring

Answer 3

Working capital “circulating capital”
-Factoring: selling A/R to another party or business

Question 4

Long term capital that is invested in a small business
-Funds invested into fixed assets that wont be converted to cash within one year

Answer 4

Fixed asset capital

Question 5

Paying down loans builds equity for a business
-Equity can be borrowed against for certain type of assets (home equity loan, home equity line of credit, reverse mortgage)

Answer 5

Fixed asset funding

Question 6

Funding in exchange for ownership stake
-Cash in exchange for stock/ ownership
-No repayment
-Investors profit through dividends/ intrinsic value of the firm (private is salary, public is intrinsic value)

Answer 6

Equity funding

Question 7

Type of equity that
-Closely held companies (privately) = private equity
-Public traded company = IPO (initial public offering)

Answer 7

Fundraising

Question 8

Any borrowed or loaned capital “principal”
-Invested in the business
-Must be repaid
-Cash to be repaid with interest (investors profit through interest)

Answer 8

Debt

Question 9

Who can be a lender?

Answer 9

-Banks: commercial business loans, mortgages
-People: friends, family, venture capitalist, angel investors
-Businesses
-Organizations: SBA

Question 10

Anyone that invests in or financially sponsors a new business

Answer 10

Venture capitalist

Question 11

Private investors that are willing to supply financing for a risky new small startup

Answer 11

Angel investors

Question 12

Raising small investments from many investors via the internet

Answer 12

Crowdfunding

Question 13

How does the SBA aid in funding small businesses

Answer 13

It matches businesses with loaners

Question 14

Type of loans with laxed terms
-Usually for students, housing, business, agriculture, and veterans
-Ex. a housing loan at 3-10% interest rather than 20%

Answer 14

Government backed loans

Question 15

What are the general steps for an SBA loan?

Answer 15

-Choose an SBA loan
-Confirm eligibility
-SBA finds a lender
-Gather required documents and submit an application
-Close on the loan

Question 16

What is the most common type of SBA loan?

Answer 16

7(a) loan guaranty program
-Primary loan program
-Loan amounts are between $500,000 - $5mil

Question 17

What are the 5 Cs of credit (5 factors the banks consider when giving out a loan)

Answer 17

1. Character (credit history)
2. Collateral (offers assurance to bank, repossession items)
3. Capital ( borrowers level of seriousness)
4. Capacity ( borrower’s debt-income ratio)
5. Condition ( interest rate amount of principal)

Question 18

What is a repayment timeframe?

Answer 18

Proportional to payoff/ return

Question 19

What is the repayment timeframe for
1. Business
2. Mortgage

Answer 19

1. 5-10 years
2. 15-30 years

Question 20

A large payment required at a point during the term to repay the balance of a loan in full

Answer 20

Balloon payment

Question 21

Interest rate charged by commercial banks on loans to their most credit worthy (best) customers

Answer 21

Prime rate

Question 22

What are the definitions of the principal when borrowing vs investing?

Answer 22

Borrowing: face note of a promissory note upon which interest is computed
Invested: how much do I have in my account

Question 23

Like a traditional loan, but the max principal is approved and available whenever the borrower needs it
-Interest rate is usually a variable rate
-Monthly repayment
-Open for a set period of time

Answer 23

Lines of credit

Question 24

What is the most common source of loan?

Answer 24

Debt loans