Tamara Underwood, Vice President

Transcription

1 Tamara Underwood, Vice President 1

2 (Low)-Risk-(High) Financing Your Business: Different Options for Different Stages Own Resources Crowd Funding Angel/Venture Microlenders/CDFIs NYBDC Banks 2

3 Savings Pros: Least expensive Most flexible Shows skin in the game Takes a long time to accumulate Could use funds for other important purposes 3

4 Home Equity Pros: Quicker access if have equity in home Relatively low rates Like a line of credit Payments tax deductible in some circumstances Risk your home if your business is not successful 4

5 Life Insurance with cash value Pros: Quick access Flexible Relatively low rates Don t have to repay it Your beneficiaries receive nothing on your death if you do not repay the loan 5

6 Retirement Funds Pros: Can borrow funds from some IRAs for up to 60 days Roll Overs as Business Start-Up 401K assessable taxes can be avoided Ease of Access IRA if exceed 60 days by one day, pay penalties and taxes on the funds 401 K the IRS scrutinizes these carefully, any violation can result in stiff penalties and taxes, requires sound legal and tax advice Depletion of retirement funds 6

7 Friends and Family 7

8 Friends and Family Pros: Know and believe in you Quick access May not understand the risk undertaken May hurt family relationships Be clear: Is it a loan? Or a share in your business? 8

9 Credit Cards Pros: Use your personal credit to finance your business Quick access Like a line of credit Risk your personal credit rating Very expensive if make minimum monthly payments As balances rise, credit card company may raise rates Not building business credit 9

10 Credit Based Crowd Funding/Peer to Peer 10

11 Credit Based Crowd Funding/Peer to Peer Pros: Individuals provide capital via the platform Amounts - $25K-$500K Quicker access On-line applications Build personal or business credit Rates are higher than brick and mortar microlenders Terms are short compared to maximum loan size Websites don t accurately reflect competitors terms 11

12 On Line Lenders Pros: Amounts - $25K-$250K Quicker access On-line applications Good customer service Build personal and/or business credit Rates are higher than brick and mortar microlenders (40% or more) Terms are short compared to maximum loan size Lack of transparency on costs: fees, interest rates 12

13 Angel Investors Pros: High wealth individuals or groups provide capital for early stage A bridge friends & family to venture phase Personalized approach Ownership equity involves input into the business Look 10X to 30X return on their investment within 5-7 years Focus is high tech, high growth sectors 13

14 Pros: Invests in enterprises that are too risky for bank loans or other markets Can provide expertise to the business Take equity share, Loss of control Need for high returns means that very few sectors receive investment Quick Exit Focus is high tech, high growth sectors 14

15 Pros: Not-for Profit Non-Bank Lenders: Community Capital New York Loans up to $50K for enterprises that are too risky for bank loans Personalized Approach Reasonable Rates & reduced or no collateral Can provide expertise to the business Focus on main street Builds credit Time frame days Rates higher than banks, but provides access Loan size 15

16 Alternative 2 nd Look Lenders NYBDC Private for Profit Company 160 Partner Banks that provide lines of credit to NYBDC for onward lending to for profit companies Bank refers to NYBDC Allows bank to retain relationship (2 nd Look) Provides for shared credit risk Government guarantees-sba 7a & 504 Addresses collateral shortfall 16

17 Pros: Not-for Profit Non-Bank Lenders Loans from $50K to $5M: equipment, working capital, leaseholds, debt refinance, business owner-occupied real estate, business acquisition Bank participation Personalized Approach Reasonable Rates, Loan term tied to loan purpose Collateral, but focus is cash flow Broad range of business types Builds business credit Time frame days depending on loan type and purpose Paperwork Fees Collateral 17

18 Getting Started: Business Plan & Detailed Projections 3 Years business tax returns Interim Profit &Loss and Balance Sheet Schedule of Business Debts 3 Years personal tax returns Personal Financial Statement 18

19 What Microlenders, NYBDC and Banks Look For: Cash Flow: historical and detailed work on projections with assumptions explained Loan Budget: vendor quotes; working capital need analysis Good Personal & Business Credit Collateral 19

20 Contact Us! NYBDC Tamara Underwood tunderwood@nybdc.com CCNY Holly Perlowitz X 14 hperlowitz@communitycapitalny.org 20