Funding Overview Funding Ability Funding Methods

There are several ways to raise funds, or reduce the working capital needs, of a venture. Even a profitable company may run out of working capital in the short-term.

Short-Term Funding. Funding for day-to-day activities, referred to as 'working capital,' can come from obtaining a Line-of-Credit (loan) from your bank. A Line-of-Credit allows a company to fund the effort in developing a product or project until sales can be generated. Interest is assessed on the balance, so when the credit balance is reduced, so are the interest payments incurred.

Other ways to improve working capital are related to rapid payment from clients and slow(er) payments to vendors. Startup companies frequently will not be given payment terms from suppliers, so they have to pay cash in advance. By building a relationship with a supplier and obtaining "trade credit," the company may be able to delay paying for the product until it has been obtained, modified and sold to the client.

Debt or Equity in the Long-Term. Loans can be obtained, usually from a bank, in which the entire principal and interest must be paid back. Loan payments commence within a month of receiving the loan and continue until the loan and the principal are entirely returned to the lender. If it is a personally guaranteed loan, the loan must be paid off even if the business is unable to do so. A Small Business Administration (SBA) Guarantee can help to make the loan more enticing for lenders. The SBA actually guarantees 80% of the loan to the bank. An SBA guaranteed loan costs two to three percentage points more on the loan but improves the chances of loan approval. If an SBA loan goes into default, the bank is 80% protected, but you will still owe the payments to the bank and/or to the SBA.

In contrast, equity, or ownership, can be sold to investors (partners) who receive a number of shares in the company. In this case, the investment is made on the premise that the value of the company and the dividend payouts will far exceed the amount invested. Investors receive a percentage of dividends each year, based on their share of the profits generated by the company. There are no monthly loan payments to make. In fact, the investor is never paid back, even if the company fails.

There are many variations of obtaining equity investors. One is to make an Initial Public Offering (IPO). Usually "going public" is achieved by rapidly growing companies (that are profitable or expect to be shortly) that can utilize the funding to rapidly expand growth and market share.

SBP does not provide financing directly, but has established relationships with several funding/financing organizations.

International Funding. An international business can utilize all of the funding opportunities available to domestic organizations. International funding, however, can introduce complexities to the options available for domestic funding. Transactions tend to be more complex, and usually require a letter of credit. These complex transactions frequently present short-term funding opportunities by utilizing Insurance guarantees and order financing.

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Call SBP Co. at (888) 704-9100