1 How To Fid FINANCING For Your Busiess Oe of the most difficult tasks faced by the maagemet team of small busiesses today is fidig adequate fiacig for curret operatios i order to support ew ad ogoig cotracts. The sources for fiacig your busiess are may, but the type of fiacig you may choose are limited to two types. They are debt (borrowig moey) or equity (ivestig moey). Both types of fiacig have their limitatios ad advatages but both require accurate iformatio. The applicat should be prepared to aswer the followig questios whe seekig either debt or equity fiacig: This brochure is a courtesy of the USPS Diversity Developmet, Supplier Diversity Office. The iformatio set forth i this brochure does ot costitute legal advice from the USPS ad is provided as a complimetary service oly. The USPS is ot liable for ay iformatio provided, or does it edorse the agecies or corporatios listed, guaratee, or promise that such iformatio will secure the desired fiacial results. Publicatio 37 August 1996
2 DEBT FINANCING BORROWING MONEY What collateral is available to secure the loa? What assuraces ca be offered to the leder as to the compay's ability to meet its debt-service obligatios (how will it be repaid)? What additioal fiacial risks ad/or failure will be placed o the corporatio as a result of these debt-service obligatios? What are the direct (pricipal ad iterest) ad idirect (other loa restrictios) costs of this additioal moey? Fiacig Documets Checklist Copy of compay's Articles of Icorporatio Corporate Tax Returs - copies of past 3 years filigs Previous 3 years Fiacial Statemets Curret year iterim Fiacial Statemet Compay history, capabilities ad marketig iformatio (or Busiess Pla) Accouts Payable Agig Report Accouts Receivable Agig Report EQUITY FINANCING INVESTMENT MONEY What will equity holders suffer or lose as a result of gettig additioal equity capital? What are the relative risks ivolved i the use of the capital to be raised? How will prospective ivestors assess this risk i determiig their expected rates of retur? What are the projected profits to be geerated by the use of the capital to be raised? How ad whe will these profits be divided ad distributed amog the holders of the compay's equity securities? What tax advatages are lost as a result of the choice of debt ( borrowig moey) over equity (ivestig moey)?
3 The maagemet team must prepare ad submit to the bak or fiacig compay miimally the followig eight (8) essetial elemets that describe your busiess: I. BUSINESS DESCRIPTION Describe the busiess, its products, ad customers Idetify who ows the busiess ad what qualificatios they have to ru the busiess Describe additio of key maagemet ad operatioal persoel Describe previous fiacig II. MARKET ANALYSIS Repeat customers ad sigificat large customers Valuable trademarks or traditioal images Methods of distributio Seasoality patters Spedig levels by major customer group Size of the market i 5 years ad 10 years Impact of ew techology o market size Major competitors i terms of idetity, locatio, ad market stregth How competitor products ad services compare to your busiess The stregths ad weakesses of the major competitors Ay proprietary assets such as copyrights, patets, ad trademarks Defie ay importat regulatory requiremets by the FCC, EPA, FDA, SEC III. MARKETING STRATEGY Defie target markets by product lie iche ad by major customer Describe major pricig, quality cotrol, ad market share decisios Idetify sources of reveue growth Describe key factors of demographic treds ad locatios Provide sales pla ad advertisig pla
4 IV. OPERATIONS Locatio facilities Terms of ay leases or mortgages o real property Ay expasio plas i terms of ew facilities Corporate ad admiistrative overhead, ad fixed ad variable operatig costs Status of stadard cost or job cost systems Stregths ad weakesses of receivig ad warehousig fuctios Ivetory reportig methodologies, icludig physical ivetory methods Status of labor relatios, icludig legal ad uio eviromet Market costs ad competitive factors impact o the labor force V. ORGANIZATION / MANAGEMENT Provide a detailed orgaizatioal chart by departmet ad regio Describe key maagerial talet Duties ad resposibilities Sigificat achievemets Professioal resumes Compesatio ad owership icetives Terms of employmet cotracts Ay related party trasactios Describe the members of the Board of Directors or Trustees Professioal credetials Committee membership Resposibilities FINANCIAL RESOURCES LISTED ON BACK PAGE
5 VI. SCHEDULED MAJOR EVENTS Provide a timetable of major evets expected withi the ext 3 to 5 years Describe ew opeigs, products, ad services Describe ecessary capital expeditures Describe prelimiary merger, acquisitio, spi-off, or IPO (Iitial Public Offerig) plas VII. FINANCIAL INFORMATION Provide historical fiacial statemets for the past five years: Icome statemets Balace sheets Statemets of cash flows Copies of icome tax returs for last 3 years Provide sales detail (with copies of cotracts from customer) by: Locatio ad product lie; Specific products or services Size of trasactio Major customer Prepare five year fiacial projectios Describe all assumptios uderlyig the projectios ad discuss risk of uforesee evets Prepare historical mothly fiacial statemets for the past two years Prepare projected mothly fiacial statemets for the ext two years Prepare a detailed break-eve aalysis VIII. FINANCING OBJECTIVES The eed for fiacig, size & type required Be prepared to have a pla to explai how you will repay the moey borrowed.
6 WHERE TO GO FOR FINANCING SBA, (202) or fax (202) for the Directory of Operatig Small Busiess Ivestmet Compaies. AT&T Small Busiess Ledig Corporatio, (800) for referece to a office ear your busiess. Busiess Cosortium Fud, (212) Natioal Associatio of Ivestmet Compaies, (202) SBA for list of Small Busiess Developmet Ceters i your local area. Alterative Fiacial Services, Ic., (703) or 1(800) For iformatio about cotract ad purchase order fiacig, fax to (703) This compay fiaces federal, state, city, ad high grade commercial cotracts ad purchase orders for small busiesses. Ofte overlooked for referral sources to fiacig are: relatives, frieds, CPA's, law firms, local or state chamber of commerce, local ecoomic developmet authorities, ad elected federal ad state official's offices. Attedace at semiars, workshops, covetios, ad professioal membership evets are very productive because baks ad fiacial istitutios are always preset advertisig their services. SOURCES OF FINANCING Private Idividual Ivestors - The private placemet geerally offers reduced costs because of its exemptio from may of the extesive registratio ad reportig requiremets imposed by federal ad state securities laws. The private placemet alterative usually also offers the ability to structure a more complex ad cofidetial trasactio, sice the offerees will typically be a smaller umber of sophisticated ivestors.
7 SOURCES OF FINANCING Istitutioal Veture Capital - The term "veture capital" refers geerally to the early stage fiacig of youg, emergig growth compaies at a relatively high risk. The professioal veture capitalists are usually a group of highly traied geeral parters who maage a pool of veture fuds for ivestmet i growig compaies o behalf of a group of passive limited parters or a federally licesed Small Busiess Ivestmet Compay (SBIC). Commercial Fiace Compaies - May compaies who seek debt fiacig but are rejected by baks tur to commercial fiace compaies, factorig compaies, ad accouts receivable fiacig compaies for credit. These compaies usually offer debt fiacig at cosiderably higher rates tha a istitutioal leder, but are ofte willig to provide lower rates if the compay takes advatage of other services offered for fees, such as payroll ad accouts receivable maagemet. I part, due to fewer federal ad state regulatios, commercial fiace compaies geerally have more flexible ledig policies tha traditioal commercial baks. Leasig Compaies - Small busiesses with a eed to acquire specific assets to fiace their developmet should cosider leasig as oe alterative to debt fiacig. Leasig typically takes o oe of three forms: Sales ad Leaseback Arragemets uder which the compay sells the asset to a third party ad the immediately leases it back from the third party for a specified period ad uder specific terms. The advatage here for the seller/lessee is that the fuds which would otherwise be used to pay the sale price of the asset remais available for other purposes, the use of the asset is retaied ad the lease paymets geerally qualify as deductible busiess expeses; Operatig Leases usually provide the lessee with both the asset ad a service cotract over a period of time which is geerally less tha the actual useful life of the asset. As a result, the aggregate paymets uder the lease cotract are ot sufficiet to recover the full value of the equipmet which usually meas lower
8 SOURCES OF FINANCING mothly paymets for the lessee. If egotiated properly, the operatig lease will cotai a cacellatio clause which gives the lessee the right to cacel the lease with little or o pealty ad; Capital Leases differ from a operatig lease i that they geerally do ot iclude ay maiteace services ad ivolve the use of the equipmet by the lessee over the full useful life of the asset. State ad Local Govermet Programs - May state ad local govermets provide direct or idirect fiacig to small ad growig compaies i a effort to foster ecoomic developmet. The amout ad terms of the fiacig will usually be regulated by the statues authorizig the creatio of the state or local developmet agecy. Trade Credit/Cosortiums (Vedors ad Customers) - Suppliers have a vested iterest i the log term growth ad developmet of their customer base ad may be willig to exted favorable trade credit terms or eve direct fiacig to help a customer's growth. The same priciples apply to the customers of a growig compay who rely upo the compay as a key supplier of eeded resources. A ew tred is emergig i customer related fiacig, kow as a cosortium. Credit Card Fiacig - Aother ew ad emergig source of cotract fiacig is the credit card facility which is beig used by the federal govermet, particularly the Geeral Services Admiistratio for its purchase order busiess. SUMMARY This is a very short explaatio of the documets you will eed to submit a request for fiacig. The amout ad ature of iformatio will vary with each fiacig source; therefore, be prepared to provide more iformatio tha stated i the fiacig checklist. Remember, every fiacig source has its ow documet requiremets.