One of the most difficult tasks faced

by the management team of small

businesses today is finding adequate

financing for current operations in order

to support new and ongoing contracts.

The sources for financing your business

are many, but the type of financing you

may choose are limited to two types.

They are debt (borrowing money) or

equity (investing money). Both types of

financing have their limitations and

advantages but both require accurate

information. The applicant should be

prepared to answer the following

questions when seeking either debt or

equity financing:

This brochure is a courtesy of the USPS Diversity Development, Supplier

Diversity Office. The information set forth in this brochure does not constitute

legal advice from the USPS and is provided as a complimentary service only.

The USPS is not liable for any information provided, nor does it endorse the

agencies or corporations listed, guarantee, or promise that such information will

secure the desired financial results.

How To

Find

FINANCING

For

Your

Business

Publication 37

August 1996
n What collateral is available to secure the

loan?

n What assurances can be offered to the

lender as to the company's ability to meet

its debt-service obligations (how will it be

repaid)?

n What additional financial risks and/or

failure will be placed on the corporation as a

result of these debt-service obligations?

n What are the direct (principal and interest)

and indirect (other loan restrictions) costs of

this additional money?

EQUITY FINANCING

INVESTMENT MONEY

n What will equity holders suffer or lose as a

result of getting additional equity capital?

n What are the relative risks involved in the

use of the capital to be raised? How will

prospective investors assess this risk in

determining their expected rates of return?

n What are the projected profits to be

generated by the use of the capital to be

raised? How and when will these profits be

divided and distributed among the holders of

the company's equity securities?

n What tax advantages are lost as a result of

the choice of debt ( borrowing money) over

equity (investing money)?

DEBT FINANCING

BORROWING MONEY

Financing Documents Checklist

✓ Copy of company's Articles of

Incorporation

✓ Corporate Tax Returns - copies of past 3

years filings

✓ Previous 3 years Financial Statements

✓ Current year interim Financial Statement

✓ Company history, capabilities and

marketing information (or Business Plan)

✓ Accounts Payable Aging Report

✓ Accounts Receivable Aging Report
I. BUSINESS DESCRIPTION

n Describe the business, its products, and

customers

n Identify who owns the business and what

qualifications they have to run the

business

n Describe addition of key management and

operational personnel

n Describe previous financing

II. MARKET ANALYSIS

III. MARKETING STRATEGY

n Define target markets by product line niche

and by major customer

n Describe major pricing, quality control, and

market share decisions

n Identify sources of revenue growth

n Describe key factors of demographic trends

and locations

n Provide sales plan and advertising plan

n Repeat customers and significant large

customers

n Valuable trademarks or traditional images

n Methods of distribution

n Seasonality patterns

n Spending levels by major customer group

n Size of the market in 5 years and 10

years

n Impact of new technology on market size

n Major competitors in terms of identity,

location, and market strength

n How competitor products and services

compare to your business

n The strengths and weaknesses of the

major competitors

n Any proprietary assets such as copyrights,

patents, and trademarks

n Define any important regulatory

requirements by the FCC, EPA, FDA, SEC

The management team must prepare and

submit to the bank or financing company

minimally the following eight (8) essential

elements that describe your business:
n Provide a detailed organizational chart by

department and region

n Describe key managerial talent

n Duties and responsibilities

n Significant achievements

n Professional resumes

n Compensation and ownership incentives

n Terms of employment contracts

n Any related party transactions

n Describe the members of the Board of

Directors or Trustees

n Professional credentials

n Committee membership

n Responsibilities

V. ORGANIZATION / MANAGEMENT

IV. OPERATIONS

n Location facilities

n Terms of any leases or mortgages on

real property

n Any expansion plans in terms of new

facilities

n Corporate and administrative

overhead, and fixed and variable

operating costs

n Status of standard cost or job cost

systems

n Strengths and weaknesses of

receiving and warehousing functions

n Inventory reporting methodologies,

including physical inventory methods

n Status of labor relations, including

legal and union environment

n Market costs and competitive factors

impact on the labor force

FINANCIAL RESOURCES

LISTED ON BACK PAGE
VI. SCHEDULED MAJOR EVENTS

n Provide a timetable of major events

expected within the next 3 to 5 years

n Describe new openings, products, and

services

n Describe necessary capital expenditures

n Describe preliminary merger, acquisition,

spin-off, or IPO (Initial Public Offering)

plans

VII. FINANCIAL INFORMATION

n Provide historical financial statements for

the past five years:

n Income statements

n Balance sheets

n Statements of cash flows

n Copies of income tax returns for last 3

years

n Provide sales detail (with copies of contracts

from customer) by:

n Location and product line;

n Specific products or services

n Size of transaction

n Major customer

n Prepare five year financial projections

n Describe all assumptions underlying the

projections and discuss risk of unforeseen

events

n Prepare historical monthly financial

statements for the past two years

n Prepare projected monthly financial

statements for the next two years

n Prepare a detailed break-even analysis

VIII. FINANCING OBJECTIVES

n The need for financing, size & type required

n Be prepared to have a plan to explain how

you will repay the money borrowed.
WHERE TO GO FOR FINANCING

SOURCES OF FINANCING

n Private Individual Investors - The private

placement generally offers reduced costs

because of its exemption from many of the

extensive registration and reporting requirements

imposed by federal and state securities laws.

The private placement alternative usually also

offers the ability to structure a more complex and

confidential transaction, since the offerees will

typically be a smaller number of sophisticated

investors.

n SBA, (202)205-6510 or fax (202)205-6959

for the Directory of Operating Small

Business Investment Companies.

www.sbaonline.sba.gov

n AT&T Small Business Lending

Corporation, (800)221-7252 for reference to

an office near your business.

www.att.com/capital/bfnet

n Business Consortium Fund, (212)243-7360

n National Association of Investment

Companies, (202)289-4336

n SBA for list of Small Business Development

Centers in your local area.

n Alternative Financial Services, Inc.,

(703)370-1599 or 1(800)480-1599. For

information about contract and purchase

order financing, fax to (703)751-1707. This

company finances federal, state, city, and

high grade commercial contracts and

purchase orders for small businesses.

http://www.dirs.com/finance/ALT

n Often overlooked for referral sources to

financing are: relatives, friends, CPA's, law firms,

local or state chamber of commerce, local

economic development authorities, and elected

federal and state official's offices. Attendance at

seminars, workshops, conventions, and

professional membership events are very

productive because banks and financial institutions

are always present advertising their services.
n Institutional Venture Capital - The term

"venture capital" refers generally to the early

stage financing of young, emerging growth

companies at a relatively high risk. The

professional venture capitalists are usually a

group of highly trained general partners who

manage a pool of venture funds for investment in

growing companies on behalf of a group of

passive limited partners or a federally licensed

Small Business Investment Company (SBIC).

n Commercial Finance Companies - Many

companies who seek debt financing but are

rejected by banks turn to commercial finance

companies, factoring companies, and accounts

receivable financing companies for credit. These

companies usually offer debt financing at

considerably higher rates than an institutional

lender, but are often willing to provide lower rates

if the company takes advantage of other services

offered for fees, such as payroll and accounts

receivable management. In part, due to fewer

federal and state regulations, commercial finance

companies generally have more flexible lending

policies than traditional commercial banks.

n Leasing Companies - Small businesses

with a need to acquire specific assets to finance

their development should consider leasing as

one alternative to debt financing. Leasing

typically takes on one of three forms:

n Sales and Leaseback Arrangements

under which the company sells the asset to a

third party and then immediately leases it

back from the third party for a specified

period and under specific terms. The

advantage here for the seller/lessee is that

the funds which would otherwise be used to

pay the sale price of the asset remains

available for other purposes, the use of the

asset is retained and the lease payments

generally qualify as deductible business

expenses;

n Operating Leases usually provide the

lessee with both the asset and a service

contract over a period of time which is

generally less than the actual useful life of

the asset. As a result, the aggregate

payments under the lease contract are not

sufficient to recover the full value of the

equipment which usually means lower

SOURCES OF FINANCING
monthly payments for the lessee. If

negotiated properly, the operating lease will

contain a cancellation clause which gives the

lessee the right to cancel the lease with little

or no penalty and;

n Capital Leases differ from an operating

lease in that they generally do not include

any maintenance services and involve the

use of the equipment by the lessee over the

full useful life of the asset.

n State and Local Government Programs -

Many state and local governments provide direct

or indirect financing to small and growing

companies in an effort to foster economic

development. The amount and terms of the

financing will usually be regulated by the statues

authorizing the creation of the state or local

development agency.

n Trade Credit/Consortiums (Vendors and

Customers) - Suppliers have a vested interest in

the long term growth and development of their

customer base and may be willing to extend

favorable trade credit terms or even direct

financing to help a customer's growth. The same

principles apply to the customers of a growing

company who rely upon the company as a key

supplier of needed resources. A new trend is

emerging in customer related financing, known

as a consortium.

n Credit Card Financing - Another new and

emerging source of contract financing is the

credit card facility which is being used by the

federal government, particularly the General

Services Administration for its purchase order

business.

n This is a very short explanation of the

documents you will need to submit a request for

financing. The amount and nature of information

will vary with each financing source; therefore,

be prepared to provide more information than

stated in the financing checklist. Remember,

every financing source has its own document

requirements.

SUMMARY

SOURCES OF FINANCING