Entreprenuer Small Business Mgmt
Kevin Sicken had a bigger vision for Able Planet. Kevin Sicken produced earphones that can fit Into a person’s ear canal which would stay during strenuous activity and block-out ambient noise. He lined up thirty (30) potential customers who were interested in his innovated earphones, and convinced them to sign disclosure agreements. Kevin Sicken, Able Planet’s CEO and chairman is seeking capital to finance existing operations for Its current products, build a prototype for a new product and market both products to new and current customers (Scarborough, 2012).
Furthermore, the bank had changed the terms; Able Planet line of credit 2. 5 lion would no longer be financed by the bank for upfront cost of raw materials and manufacturing. Questions and Responses IQ . Experts say that entrepreneurs who need between $100,000 and 3 million often face the greatest obstacles when Ralston capital for their businesses. Why? Entrepreneurs find it very difficult to obtain a working capital between $1 00,000 and $million because that is a large sum of money to obtain as a loan from any financial Institution.
All manner of persons being entrepreneurs, or businessmen are all In high demand for loans from financial Institutions and therefore the banks find
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They tend to look for already grown companies buy stocks which remains the only available option for hem as those companies look promising with good track records and fast-growth futures. Another reason could be that most of these entrepreneurs lack a well documented business plan. This doesn’t let them to establish trust for the lenders and investors from financing their businesses. Q. How should Kevin Sicken raise the $1 5 million in capital that Able Planet needs? Be sure to consider sources of both debt and equity financing.
Well since Sicken already has his company up and running, I think the best way to raise money is to raise Venture Capital. Venture 1 OFF grow. Venture Capitalist usually shy away from investing small amounts of capital into business and prefer investing $500,000 to millions into businesses. Kevin Sicken needed a financial strategy to raise cash. “Where to find this seed money depends, in part, on the nature of the proposed business and on the amount of money required” (SHE Productions, n. D. ).
Kevin Sicken had traveled around the country going to fifteen (15) banks trying to get a loan, to avail no one would was interested in making one (Scarborough, 2012). At that time financial markets had all but slammed shut the lending window at most commercial banks. Kevin Sicken can use the debt financing which will allow him to borrow money that must be repaid over a period of time, usually with interest. Debt financing can be either short-term, with full repayment due in less than one year, or long-term, with repayment due over a period greater than one year.
The lender does not gain an ownership interest in the business, and debt obligations are typically limited to repaying the loan with interest. Loans are often secured by some or all of the assets of the company. Lenders require borrower’s personal guarantee in case of default. Loans can be obtained from many different sources, including banks, savings and loans, credit unions, commercial finance companies, and SABA-guaranteed loans. “Saba’s guaranteed lending programs encourage banks and non-bank lenders to make long- term loans to small firms by reducing their risk and leveraging the funds they have available” (Scarborough, 2012).
The disadvantages of borrowing money for a small business may be great. You may have large loan payments at precisely the time you need funds for start-up costs. If you don’t make loan payments on time to credit arts or commercial banks, you can ruin your credit rating and make borrowing in the future difficult or impossible. For a new business, commercial banks may require you to pledge your personal assets before they will give you a loan. If your business goes under, you will lose your personal assets. Kevin Sicken can also use equity financing.
This entails money raised by a company in exchange for a share of ownership in the business. Ownership accounts for owning shares of stock outright or having the right to convert other financial instruments into stock (Scarborough, 2012). Equity financing allows a business to obtain funds without incurring debt, or without having to repay a specific amount of money at a particular time. This Equity often comes from investors such as friends, relatives, employees, customers, or industry colleagues. The most common source of equity funding comes from venture capitalists.
The main disadvantage, the investors can become partial owners of the business and can make decisions. Since your investors own a piece of your business, you are expected to act in their best interests as well as your own, or you could open ourselves up too lawsuit. Q. Write a memo to Kevin Sicken explaining what he should do before potential lenders and investors to maximize his chances of getting the capital Able Planet needs. Dear Kevin Sicken, Before you approach potential lenders and investors, I think you should gain some sort of line of credit. Lenders and investors want to know if you can manage your money and pay your debt.
I think you should also write a detailed business plan. A business plan is an outline for your business and it’s operations, finance and pros the product/service and the profitability of it. And lastly, do your homework on your backers. Find out if you would need a bank loan, Venture Capitalist or Angel Investors for the needs of funding your business. MEMO TO: Kevin Sicken CEO and Chairman of Able Planet FROM: Denies Jacob RE: Able Planet DATED: October 5, 2013 Thank you for giving me the opportunity to explain to you how to maximize your chances of getting the capital needed for Able Planet.
When approaching potential lenders and investors, what is needed? I-Well written business plan-written summary of your business venture, operational and financial details (Scarborough, 2012). This will increase the chances of success when using the business plan to attract capital. Lenders and investors evaluate the business plan for creditworthiness of entrepreneur seeking financing. Lenders and investors use the five Co’s of credit (Scarborough, 2012). I-Capital-A small business must have capital before any lender or investor will grant a loan.
Many reasons why banks reject small businesses loan applications because of internationalization and too much debt they have incurred. 2-Capacity-(Cash Flow) – Lenders and investors need to see if you are able to repay the loan or offer return in investment. It is possible that a company can show a profit and still run out of cash. Lenders expect a business to pass a liquidity test; this will show the company’s cash flow position to decide whether it has the capacity to succeed. 3-Collateral- Typically used for security.
If an entrepreneur pledges any assets they may have to a lender as security for repayment of loan. If entrepreneur defaults, the bank has the right to sell it and use it for collateral and use the proceeds to satisfy the loan. 4- Character-Lenders and investors want to see your characteristics. These intangible factors such as: honesty, competence, polish, termination manage knowledge, experience and the ability. This will show them that you have the ability to manage your company successfully. -Conditions- This is based on the business operations, Lenders and investors want to see is there any potential growth in the market, competition, location, form of ownership, and loan purpose. This information should be formatted in the business plan. This help to influence the banker’s and demand for money. The business scores of these five Co’s, the greater the chance will be in receiving the loan or investment. Entrepreneurs just keep in mind; prepare their business plans and presentation before presenting to the lenders and investors.