The Financial Plan, Part 2: Finding Sources of Funds

Part 3 Developing the New Venture Business Plan

PowerPoint Presentation by Charlie Cook The University of West Alabama
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved.

Tradeoffs Between Debt and Equity

Exhibit 11.1
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Debt Versus Equity at the Levine Company

All Equity: Owners keep all profits in return for accepting the risk of lower returns.

Debt is Risky: Lenders have first claim on profits and must be paid even if there are no profits.

Exhibit 11.2
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Sources of Funds

Exhibit 11.3
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Debt or Equity Financing? (contd.)

Sources Close to Home
Personal savings
Owner equity is expected by other investors.

Family and friends

Borrowing puts personal relationships at risk.

Credit cards
Provides immediate access to funds and assets; cards should be method of payment and not a source of credit.

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1111

Sources of Personal Capital for Small Firms

Source: Entrepreneurship Monitor 2002, Wall Street Journal, August 26, 2003, p. B8.

Exhibit 11.5
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The Bankers Perspective

Bankers Concerns
How much the bank will earn on the loan? What is the likelihood that the lender will be able to repay the loan?

The Five Cs of Credit

Character of the borrower
Capacity of the borrower to repay the loan Capital invested in the venture by the borrower

Conditions of the industry and economy

Collateral available to secure the loan
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The Bankers Concerns

How much money is needed? What is the venture going to do with the money?

When will the money be needed?

When and how will the money be paid back?

Copyright 2006 Thomson Business & Professional Publishing. All rights reserved.

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