SBM Chapter 14

optimum capital structure

(3 words OCS). ratio of debt and equity that provides maximum level of profits

community developed organization microlenders

(4 words CDOM). organization authorized by SBA to make insured loans to SB that one expected to increase economy activity within a geographical range

4 Cs of borrowing

1. character 2. capacity (IMPORTANT) measured by profitability and cash flows from operations 3. condition of industry or economy (technology, competition, economy and growth) 4. collateral value estimated market value of tangible assets

(ways to) get a loan

1. direct cash 2. guaranteed 3. reduced taxes by deducting interest

credit reporting agencies

CRA. experian. equifax. innovis. transunion

fair credit reporting act

FCRA. requires all information reported to CRAS to be accurate. 30 days to investigate. must supply any information that consumer provides

financial ratios

activity (how productive an asset is). profitability (efficiency in general wealth from sales). liquidity (determine business' capacity to pay debts). leverage (relative risk that business probably could cause bankruptcy)

financial leverage

amount of debt relative to total investment

personal equity

amount you contribute depends on personal wealth. not always received easily or available. need to know the amount and type of wealth you have

accelerator

an organization that supports start-ups with a financial investment, free or inexpensive space

gift equity

assets or money donated without obligation to repay

debt equity

borrow money from banks, agencies, government, or individuals

gift capital

capital resources that neither provide any ownership nor require any repayment to the giver

debt

claim on value of a business' asset legally enforceable to pay back

tax credits

direct reduction in amount of taxes that must be paid depending on meeting same legal criteria. provided by US gov and some states

unsecured debt

doesn't give lender right to seize any specific asset. lenders must use court action to collect unpaid ________

LLC

formed by filing required documentation with state government. have choice under law of being taxed as a corporation or partnership. owners can attract debt and equity capital

grants

gift of money made to a business for a specific purpose. available from federal and state governments and (semi) private economic development agencies

corporation

legal entity formed by filing specific documentation with a state government

risk

level of probability that an investment won't produce expected gains

outside equity

money from selling part of your business to people not involved in business __________ investors. people who buy ownership rights in a business are considered this. brings new ideas, processes, and procedures to an existing business

angel investors

number of high wealth individual investors in first and second stage funding. can be individual ________, ______ network, or _____ fund

royal financing

obtaining capital in which investors give money to a business in return for guaranteed percentage of revenues

dividends

payments of profits to ownership of a corporation

gain on investment

percentage amount that the payout of investments offers to its investments. (payout-investment+dividends)/investment

SBIC (small business investment company)

private business that's authorized to make SBA loans to start-up a small business

tax abatements

provided by state and local government

secured debt

provides lender with a right to seize any specific asset if loan isn't paid off

harvest

recovering value of investment through sales of a firm or its asset

equity capital

sell parts of the business

collateral

something of value given/pledged as security for payment of a loan. most intangible products aren't good collateral. value of collateral is estimated marketing value of asset being used. can include stocks, bonds, and physical goods