C APITAL O PPORTUNITIES F OR S MALL B USINESSES ` CAPITAL OPPORTUNITIES FOR SMALL BUSINESSES A Guide to Financial Resources for Small Business in North Carolina 1 Prepared by the Small Business & Technology Development Center C A P IT A L O PPORTUNITIES F OR S M A L L B USINESSES 2 C A P IT A L O PPORTUNITIES F OR S M A L L B USINESSES © 2013 by The University of North Carolina’s Small Business and Technology Development Center (SBTDC) 5 West Hargett Street, Suite 600, Raleigh, NC 27601 phone: 919.715.7272 e-mail: [email protected] website: www.sbtdc.org All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the prior written permission of the publisher. This material is based upon work supported by the US Small Business Administration (SBA). Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author[s] and do not necessarily reflect the views of the SBA. The SBTDC would like to thank the following for their valuable contributions to this guide: Ashleigh Cates Pete Donahue Angela Farrior Tim Janke Eileen Joyce Karen Hoskins George McAllister Bethany Sampson Morgan David Morgan Lisa Ruckdeschel FEEDBACK If you have any suggestions or questions about this guide, please call 919. 715-7272 or e-mail [email protected]. 3 C A P IT A L O PPORTUNITIES F OR S M A L L B USINESSES 4 C A P IT A L O PPORTUNITIES F OR S M A L L B USINESSES TABLE OF CONTENTS CHAPTER 1: INTRODUCTION ....................................................................................................................... 11 Purpose of this Guide ........................................................................................................................................ 11 CHAPTER 2: OVERVIEW OF FINANCING RESOURCES .................................................................................... 13 Getting Started .................................................................................................................................................. 13 Start-Up (or “Seed”) Stage ................................................................................................................................ 13 Personal Assets ............................................................................................................................................. 14 Family and Friends ........................................................................................................................................ 14 Home Equity Loans or Credit Lines ................................................................................................................ 14 Growth Phase .................................................................................................................................................... 15 Internal Financing .......................................................................................................................................... 15 Cash Management Tools ............................................................................................................... 15 Accounts Receivable Management................................................................................................ 15 Inventory Control .......................................................................................................................... 15 Electronic Commerce..................................................................................................................... 16 Barter ............................................................................................................................................. 16 External Financing ......................................................................................................................................... 16 Short-term Financing ..................................................................................................................... 17 Long-term Financing ...................................................................................................................... 18 Debt Financing ............................................................................................................................... 18 Equity Financing ............................................................................................................................ 18 Debt Financing vs. Equity Financing ............................................................................................... 19 Debt-to-Equity Ratio ...................................................................................................................... 19 Grants ............................................................................................................................................ 22 CHAPTER 3: FINANCIAL INSTITUTIONS ........................................................................................................ 23 Commercial Banks ............................................................................................................................................. 23 Savings Institutions............................................................................................................................................ 24 Non-Bank Lenders ............................................................................................................................................. 24 Asset-Based Lenders...................................................................................................................................... 24 Purchase order financing ............................................................................................................... 25 Specialized Asset-Based Lenders ................................................................................................... 26 Factors or Factoring Companies .................................................................................................... 26 Leasing Companies ........................................................................................................................ 28 Credit Unions ..................................................................................................................................................... 30 Community Development Credit Unions (CDCUs) or Community Development Corporations (CDCs) ............................................................................................................................................ 32 Veteran Direct Loan Program ........................................................................................................ 32 North Carolina Minority Support Center ........................................................................................................... 32 CHAPTER 4: FEDERAL GOVERNMENT SOURCES ........................................................................................... 33 U.S. Small Business Administration (SBA) ......................................................................................................... 33 7(a) Loan Guaranty Program ......................................................................................................................... 34 Restrictions on Eligibility of Businesses ......................................................................................................... 35 5 C A P IT A L O PPORTUNITIES F OR S M A L L B USINESSES Loan Maturities ............................................................................................................................................. 36 Interest Rates and Fees ................................................................................................................................. 36 SBA 7(a) Programs ........................................................................................................................................ 36 The Preferred Lenders Program (PLP) ........................................................................................... 36 SBA Express Program ..................................................................................................................... 37 SBA Patriot Express Loan ............................................................................................................... 37 SBA Military Reservists Economic Injury Loans .............................................................................. 37 EXPORT FINANCING ...................................................................................................................................... 38 Export Express Loan Program ........................................................................................................ 38 The Export Working Capital Guarantee Program........................................................................... 38 The International Trade Loan Program .......................................................................................... 38 SBA Community Advantage Program ........................................................................................................... 39 Short-term Loans and Revolving Lines of Credit (CAPLines) ......................................................................... 40 Community Adjustment & Investment Program (CAIP) ...............................................................................