Access to Capital Workshop
- 1. Presented by: Katina Phillips, VP Business Banker Access to Capital
- 2. Copyright 2019 EVERFI, Inc. Worksho p Goal s 1) Define Capital 2) Funding a Start Up 3) Funding Growth and Expansion 4) Borrowing vs Organic Cash Flow 5) Other Ways to Speed Up Access 6) Understanding Credit Products T oday, you will learn the following...
- 3. What Is Capital? Simply put, capital is the life blood of any business. It’s like the fuel an engine requires to move. In most cases, there are 2 ways to acquire capital. 1. Earn it 2. Borrow it wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing
- 4. Funding A Start Up • Personal Savings. • Private Investor/Crowd Funding. • Personal Loan. • Conventional Lending or SBA Guaranteed Loan.
- 5. Funding Growth & Expansion • Adding Products or Services. • Purchasing Equipment & Other Assets. • Short Term Working Capital. • Loans vs Lines of Credit.
- 6. Borrowing vs Self Funded Short-Term Needs (such as paying bills or covering travel expenses) • Lines of credit (secured and unsecured) • Business credit cards • Self Fund when possible Long-Term Needs (such as buying a vehicle, real estate, or equipment) • Unsecured term loans • Non-real estate-secured term loans • Real estate-secured term loans • Self Funding is more difficult
- 7. Other Ways to Speed Up Access Payment Processing and Automated Invoicing • Accepting Debit/Credit Cards • Payment Apps (Zelle, Applepay, Venmo etc.) • Invoicing Software Alternative Solutions • Merchant Advance • Invoice Advance (factoring) • Offering Discounts for Early Pay • Taking Advantage of Delayed Payment Options
- 9. Lines of Credit WhatAre Their Characteristics? • Provide short-term finances • Allow borrowing up to a certain dollar amount • May be revolving: as principal is repaid, it becomes available again • Can be repaid with interest in installments over time • Have interest rates that may fluctuate with time Why UseThem? • Fund ongoing operations • Have working capital and easy access to cash • Have cash flow, especially during seasonal fluctuations • Acquire inventory • Meet short-term goals • Take advantage of trade discounts
- 10. Pros and Cons: Lines of Credit Pros • Are more flexible based on cash flow needs—especially during seasonal fluctuations—or unexpected situations. • Have a lower interest rate and closing costs than term loans. • Can be repaid incrementally. Con s • Can be riskier: depending on the type of business you have, you may be personally liable if your business fails. • May have adjustable interest rates based on the index on which they depend. • May have annual fees and require you to provide financial documents every year. • May have to be fully repaid at some point during a 12-month period. Matched the wording in the FG.
- 11. Business Credit Cards WhatAre Their Characteristics? • Are issued to businesses rather than individuals • Are used to make purchases related to the business • Usually have higher credit limits than personal credit cards Why UseThem? • Have purchasing power wherever you go • Allow for authorized users • Provide access to cash • Establish your business’s creditworthiness
- 12. Pros and Cons: Business Credit Cards Pros • Can add other authorized users and track their expenses. • Can assign credit limits for authorized users. • Keeps your personal expenses separate from your business expenses. • May have a robust rewards system. Con s • Because authorized users are not responsible for paying the bills, they may misuse the card. • Mishandling a business credit card account may negatively affect your personal credit report . • If you have a large balance, compound interest can add up quickly.
- 13. Term Loans WhatAre Their Characteristics? • Provide a fixed amount • Are for a specific purpose • Are repaid over a fixed period, up to 30 years • Are usually secured with collateral • Offer repayment in installments Why UseThem? • Purchase vehicles or equipment • Purchase capital assets or anything that has long-term value and durability, apart from real estate and software products • Close on acquisitions • Fund construction projects
- 14. Pros and Cons:Term Loans Pro s • Help finance major expenses and keep cash available for working capital. • Are repaid with fixed monthly payments, which allows for easy budgeting and financial management. • Are used to purchase equipment, vehicles, or other long-lived assets. • Are used to fund growth for well-established, profitable businesses that require permanent working capital. • Provide one lump sum at the time of funding. Con s • May have higher closing costs and interest rates than lines of credit, depending on whether a loan product is secured or unsecured. • Require borrower to reapply for additional funds.
- 15. Real Estate-Secured Loans WhatAre Their Characteristics? • Are for purchasing property that will generate its own income • May be for a high loan amount • Have higher interest rates than personal real estate loans • May have repayment terms of 5 to 20 years Why UseThem? • Non-owner-occupied real estate loan: Acquire or purchase commercial property that will generate its own income • Owner-occupied real estate loan: Purchase property or improve on land that will be used to conduct business operations
- 16. Pros and Cons: Real Estate-Secured Loans Pros • Flexible terms up to as long as 20 years, with an option to repay in installments • Opportunity to finance real estate, such as owner-occupied properties • Opportunity to finance leasehold improvements Con s • Down payments may be higher • Additional fees may raise the total cost of the loan • May have prepayment fees, severe penalties, or even lockdowns on early repayments • Interest rates may be higher than those for personal real estate loans because the risk to the lender is higher
- 17. Copyright 2019 EVERFI, Inc. Summar y Remember.. 1) Small businesses may use credit to support operations, purchase equipment, or expand services. However, self funding is usually best. 2) Establish a relationship with good resource partners.
- 18. “Making the decision to sign your own paycheck is huge! You’ve got this!” -Katina Phillips 904-505-6970