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Module 9 Sources Requirements for Financing

Module 9 Sources Requirements for Financing

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Published by: Heidi on Aug 12, 2008
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SBDC Counselor Certification ManualMODULE 9 – Sources & Requirements for Financing Table of Contents
1. Performance Objective2. Introduction3. Change of Ownership of Existing Business4. Where to Find Money for Your Business5. Loans
Performance Objective
 The Business Counselor will:
Explain the advantages, disadvantages, and requirements for debt andequity financing, and the requirements and process of obtaining a SBAloan.
 The Business Counselor will also assess the client’s potential forfinancing prior to advising the client to seek financing.
 The Business Counselor will demonstrate proficiency in sources andrequirements for financing by completing all of the following tasks.1.Demonstrating to the mentor during co-counseling, the ability toassess a client’s ability to achieve financing; effectively advising theclient of the advantages, disadvantages and requirements of debt andequity financing; and the requirements and process of obtaining SBAloans. The mentor will verify proficiency to the training coordinator.2.Reporting the results of the interview, including the loan checklist, withthe loan officer to your mentor.3.Correctly answering case study questions concerning financing issues.
How You Will Be Trained
1.Read Module 9 in its entirety.2.Attend training on financial sources.3.Co-counsel clients with your mentor.
Understanding basic credit issues is the first step in determiningwhether or not a client needs, is eligible to apply, or qualifies for financialassistance.
Equity Investment
Determining whether the company’s level of debt is
appropriaterequires an analysis of the company’s expected earnings and the variabilityof these earnings, as well as the
ratio between total debt and equity. Strongequity and low
debt levels provide resiliency which will help a firm weatherperiods of operational adversity. There must be careful
examination of thedebt-to-worth ratio of a company. Sufficient
equity is particularly importantto new businesses. Business
loan applicants must have a reasonable amountto invest to
ensure that, along with any borrowed funds, the business canoperate on a sound basis. A strong equity position ensures
that owners willremain committed to their business.
Earnings Requirements
Financial obligations are paid with cash, not profits. When cash outflowexceeds cash inflow for an extended period of time, a business cannotcontinue to operate. As a result, cash management is extremely important.In order to adequately support a company’s operation, cash must be at theright place, at the right time, and in the right amount. A company must beable to meet debt payments as they come due.
Working Capital
Working capital is essential for a company to meet the continuousoperational needs of business. The adequacy of working capital directlyinfluences the firm’s ability to meet its trade and short-term debt obligations,and ultimately its ability to remain financially viable. Working capital is theexcess of current assets over current liabilities. Because working capital isthe excess of the more liquid, working assets over the obligations of a firmwhich are due within one year, it measures the funds available to finance acompany’s current requirements and represents the cushion or margin of protection for a company’s short term creditors.

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