Chapter 14: Small Business Finance - Using Equity, Debt, and Gifts
Microlender
SBA approve partners who offer SBA-guaranteed microloans to eligible small business. These loans require much less paperwork than regular SBA or bank loans, and are for amounts under $50,000
Fair credit reporting act (FCRA)
U.S. federal legislation specifying consumer's rights vis-à-vis credit reporting agencies
Credit reporting agency (CRA)
a business that collects, collates, and reports information concerning an entity's use of debt
Corporation
a legal "artificial" entity that is formed by filing specific documents with a state government
Limited Liability Company (LLC)
a legal form of business organization that is created by filing required documentation with a state government
Debt
a legal obligation to pay money in the future
Tax abatement
a legal reduction in taxes by a government
Financial leverage
a measure of the amount of debt relative to owner investment
Royalty financing
a method of raising capital financing where investors provide money to a business in return for a guaranteed percentage of revenues
Financial management
a set of theories and techniques used to optimize the receipt and use of capital assets
Angel investor
a wealthy individual who invests in companies in relatively early stages of development
Foundation
an institution to which private wealth is contributed and from which private wealth is distributed for public purposes
Community development organization
an organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area
Accelerator
an organization that supports start-up technology businesses by providing inexpensive office space, a variety of support services, and resources
Accredited investor
as defined by the SEC in Title 17, Chapter II, Part 230, §230.501 of the Code of Federal Regulations (CFR): "Any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to the person: banks, business development companies, companies worth more than $5 million, an executive of the firm making the offering, or an individual with a personal net worth of more than $1 million." You may access the regulation online
Sophisticated investor
as defined by the SEC, people who "have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment."
Interest
charge for the use of money, usually figured as a percentage of the principal
Tax credit
direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria
Grant
gifts of money made to a business for a specific purpose
Unsecured debt
loans that do not allow the lender to seize assets in event of non-payment
Secured debt
loans that provide the lender with the legal right to seize specific assets in the event of nonpayment. Most automobile loans are secured debt and if you don't make your payments your car will be repossessed
Debt Capital
money borrowed for the purposes of investment in a business
Equity capital (or equity)
money contributed to the businesses in return for ownership of the business
Outside equity
money from selling part of your business to people who are not and will not be involved in the management of the business
Dividends
payments of profits to the owners of corporations
Small business investment company (SBIC)
private businesses that are authorized to make SBA insured loans to startup and small businesses
Harvest
recover value through sale of a firm or profits
Software as a Service (SaaS)
refers to an Internet-based program that you would use in work or leisure. These are paid for by a time-frame, project of some measurement of usage
Collateral
something of value given or pledged as security for payment of a loan
Profit, profitability
the amount that revenues exceed expenses
Weighted average cost of capital (WAC)
the expected average future cost of funds
Risk
the level of probability that an investment will not produce expected gains
Gain on investment
the percentage amount that the payout of an investment differs from original cost: calculated as (payout - investment + dividends)/investment
Cost of capital
the percentage cost of obtaining future funds
Optimum capital structure
the ratio of debt to equity that provides the maximum level of profits
Diversify
to invest in multiple investments of differing risk profiles for the purpose of reducing over-all investment risk
Partnership
two or more people cooperating to conduct a business enterprise
Financial risk
uncertainty of returns, the probability of losing money
Bootstrapping
using funds generated by business operations to capitalize growth
Gift capital (or gift)
valuable assets or services donated to the business without any obligation to repay or any ownership interest
