9-a-financing or funding

8/7/2019 9-A-Financing or funding

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FinancingFinancing

Three reasons to raise moneyThree reasons to raise money

Cash flow challenges, capital investment,Cash flow challenges, capital investment,

lengthy product development cycleslengthy product development cycles Cash Flow: Credit to customers, newCash Flow: Credit to customers, new

equipment purchases, lag b/w spendingequipment purchases, lag b/w spendingto generate revenue and earning incometo generate revenue and earning incomefrom the firms operationsfrom the firms operations


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CASH FLOWSCASH FLOWS

Credit to customers, new equipmentCredit to customers, new equipment

purchases, lag b/w spending to generatepurchases, lag b/w spending to generaterevenue and earning income from therevenue and earning income from thefirms operationsfirms operations

Training of employees, build plant &Training of employees, build plant &machinarymachinary


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Product Development CyclesProduct Development Cycles

Meet obligations of lengthy productMeet obligations of lengthy productdevelopment cyclesdevelopment cycles

Developing electronic game takes twoDeveloping electronic game takes twoyears and $4 millionyears and $4 million


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Capital InvestmentCapital Investment

Buying property, constructing buildings.Buying property, constructing buildings.

Investing in other capital projects,Investing in other capital projects,


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DebtFinancingDebtFinancing Involves getting loan or selling bondsInvolves getting loan or selling bonds

But difficult for new venture to sell a bondBut difficult for new venture to sell a bond

Two common types of loansTwo common types of loans

SingleSingle--purpose loanpurpose loan specific amount ofspecific amount ofmoney is borrowed that must be repaid in amoney is borrowed that must be repaid in afixed time with interestfixed time with interest

Second A line of CreditSecond A line of Credit A borrowing cap isA borrowing cap is

established. Borrower can use the credit atestablished. Borrower can use the credit athis/her own discretionhis/her own discretion

Benefits: ownership is not surrenderedBenefits: ownership is not surrendered

Interest payments are tax deductibleInterest payments are tax deductible


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DebtFinancingDebtFinancing

ItIt involves an interestinvolves an interest--bearingbearinginstrument, usually a loan, the paymentinstrument, usually a loan, the payment

of which is only indirectly related to salesof which is only indirectly related to salesand profits.and profits.

ShortShort--term debt is used to provideterm debt is used to provideworking capital.working capital.

Long term debt (lasting more than aLong term debt (lasting more than ayear) is frequently used to purchaseyear) is frequently used to purchasesome asset, with part of the value of thesome asset, with part of the value of the

asset being used as collateral.asset being used as collateral.


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Equity FinancingEquity Financing

It offers the investor some form of ownershipIt offers the investor some form of ownershipposition in the venture.position in the venture.

The investor shares in the profits of theThe investor shares in the profits of theventure.venture.

Equity funding provides the basis for debtEquity funding provides the basis for debtfinancing, which makes up the capitalfinancing, which makes up the capital

structure of the venture.structure of the venture.


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Equity FinancingEquity Financing(Business Angels)(Business Angels)

They invest their personal capital directly inThey invest their personal capital directly instartstart--upsups


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Equity FinancingEquity Financing(Venture Capital)(Venture Capital)

The money that is invested by ventureThe money that is invested by venture--capitalcapitalfirms in startfirms in start--ups and small businesses withups and small businesses withexceptional growth potentialexceptional growth potential

Venture capital firms provide funding to otherVenture capital firms provide funding to otherfirmsfirms

Venture capital firms are limited partnerships ofVenture capital firms are limited partnerships ofmoney managers who raise money in funds tomoney managers who raise money in funds to

invest in startinvest in start--ups and growing firms.ups and growing firms. The funds are raised from wealthy individuals,The funds are raised from wealthy individuals,

pensions plans, foreign investors etcpensions plans, foreign investors etc


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LeasingLeasing A lease is a written agreementA lease is a written agreement Owner of a piece of property allows an individualOwner of a piece of property allows an individual

or business to use the property for a specifiedor business to use the property for a specifiedperiod of time in exchange fro payments.period of time in exchange fro payments.

Equipment/Asset is acquired with little moneyEquipment/Asset is acquired with little moneyinvestedinvested In the end: Can stop use of asset, purchase atIn the end: Can stop use of asset, purchase at

fair market value, or renew the leasefair market value, or renew the lease Leasing as an alternative of debt or equityLeasing as an alternative of debt or equity

financingfinancing Leasing is always most expensive that purchaseLeasing is always most expensive that purchase

of an assetof an asset


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Internal FundsInternal Funds

The most often used type of funds is internallyThe most often used type of funds is internallygenerated funds.generated funds.

These funds come from sources within the company,These funds come from sources within the company,such as profits, sale of assets, reduction in workingsuch as profits, sale of assets, reduction in workingcapital, and accounts receivable.capital, and accounts receivable.

Sometimes littleSometimes little--used assets can be sold or leased.used assets can be sold or leased.

Assets, whenever possible, should be on a rental basis,Assets, whenever possible, should be on a rental basis,not an ownership basis.not an ownership basis.

One shortOne short--term internal source of funds is reducingterm internal source of funds is reducingshortshort--term assets, or through extended payments fromterm assets, or through extended payments fromsuppliers.suppliers.

By collecting accounts receivable more quickly.By collecting accounts receivable more quickly.


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External FundsExternal Funds

External funds ordebtExternal funds ordebt is that part ofis that part ofthe total debt in a company that is owedthe total debt in a company that is owedto creditors outside the companyto creditors outside the company

It comes from the following sources:It comes from the following sources:

(1) Friends & Family(1) Friends & Family

(2) Government(2) Government(3) Banks(3) Banks

(4) Other financial institutes(4) Other financial institutes


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Personal FundsPersonal Funds

Few new ventures are started withoutFew new ventures are started withoutthe personal funds of the entrepreneur.the personal funds of the entrepreneur.

In terms of cost and control these areIn terms of cost and control these arethe least expensive.the least expensive.

They are essential in attracting outsideThey are essential in attracting outsidefunding.funding.


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Family andFriendsFamily andFriends

After the entrepreneur, family and friends areAfter the entrepreneur, family and friends arethe next most common source of capital.the next most common source of capital.

Family and friends provide a small amount ofFamily and friends provide a small amount ofequity funding for new ventures.equity funding for new ventures.

It is relatively easy to obtain money from familyIt is relatively easy to obtain money from familyand friends.and friends.

However, the amount of money provided mayHowever, the amount of money provided maybe small.be small.

If it is in the form of equity funding, the familyIf it is in the form of equity funding, the familymember or friend has an ownership position inmember or friend has an ownership position inthe venture.the venture.


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Guidelines for EntrepreneurGuidelines for Entrepreneur

To avoid potential future problems, the entrepreneurTo avoid potential future problems, the entrepreneurmust present the positive and negative aspects and themust present the positive and negative aspects and thenature of the risks of the investment.nature of the risks of the investment.

To minimize any future problems, keep the businessTo minimize any future problems, keep the business

arrangements strictly business oriented.arrangements strictly business oriented. Any loan should specify the rate of interest and theAny loan should specify the rate of interest and the

proposed repayment scheduleproposed repayment schedule

The entrepreneur should settle everything up front andThe entrepreneur should settle everything up front and

in writing.in writing. A formal agreement specifying details of the fundingA formal agreement specifying details of the funding

helps avoid future problems.helps avoid future problems.


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COMMERCIALBANKSCOMMERCIALBANKS

Commercial banks are the mostCommercial banks are the mostfrequently used source of shortfrequently used source of short--termtermfunds.funds.

This is debt financing and requires someThis is debt financing and requires somecollateral, some asset with value.collateral, some asset with value.

This collateral can be business assets,This collateral can be business assets,personal assets, or the assets of thepersonal assets, or the assets of thecosigner of the note.cosigner of the note.


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Types of Bank loansTypes of Bank loans

Accounts receivable loansAccounts receivable loans

Accounts receivable provide a good basis for a loan,Accounts receivable provide a good basis for a loan,especially if the customer base is creditworthy.especially if the customer base is creditworthy.

A bank may finance up to 80% of the value of theA bank may finance up to 80% of the value of theaccounts receivable.accounts receivable.

A factoring arrangement can be developed wherebyA factoring arrangement can be developed wherebythe factor (bank) actually buys the accounts andthe factor (bank) actually buys the accounts and

collects the money.collects the money. If any of the receivables are not collectible, the factorIf any of the receivables are not collectible, the factor

sustains the loss, not the business.sustains the loss, not the business.

The cost of factoring is higher than the cost ofThe cost of factoring is higher than the cost ofsecuring a loan against the accounts receivable.securing a loan against the accounts receivable.


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Types of Bank loansTypes of Bank loans

Accounts receivable loansAccounts receivable loans A factoring arrangement can be developedA factoring arrangement can be developed

whereby the factor (bank) actually buys thewhereby the factor (bank) actually buys theaccounts and collects the money.accounts and collects the money.

Outright sale of account receivables to a bankOutright sale of account receivables to a bankor finance company.or finance company.

The purchaser takes all credit and collectionThe purchaser takes all credit and collectionriskrisk

The proceeds received by the selling companyThe proceeds received by the selling companyare equal to the face value of the receivablesare equal to the face value of the receivablesless the commission charge (2less the commission charge (2--4 %)4 %)


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Types of Bank loansTypes of Bank loansContdContd

Inventory loansInventory loans

Inventory is often a basis for a loan, particularly whenInventory is often a basis for a loan, particularly wheninventory is liquid and can be sold easily.inventory is liquid and can be sold easily.

Finished goods inventory can be financed up to 50%Finished goods inventory can be financed up to 50%of value.of value.

Trust receipts are a type of inventory loan used toTrust receipts are a type of inventory loan used tofinance floor plans of retailers such as auto dealers.finance floor plans of retailers such as auto dealers.

The bank advances a large percentage of the invoiceThe bank advances a large percentage of the invoice

price of the goods and is paid a pro rate basis as theprice of the goods and is paid a pro rate basis as theinventory is sold.inventory is sold.


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Inventory loansInventory loans Trust receipts are a type of inventory loanTrust receipts are a type of inventory loan

used to finance floor plans of retailers such asused to finance floor plans of retailers such asauto dealers.auto dealers.

The bank advances a large percentage of theThe bank advances a large percentage of theinvoice price of the goods and is paid a proinvoice price of the goods and is paid a prorate basis as the inventory is sold.rate basis as the inventory is sold.

The creditor has title to given goods butThe creditor has title to given goods but

releases them to borrower to sell on thereleases them to borrower to sell on thecreditors behalf.creditors behalf. As goods are sold, the borrower remits theAs goods are sold, the borrower remits the

funds to the lenderfunds to the lender


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Equipment loansEquipment loans

Equipment can be used to secure longerEquipment can be used to secure longer

term financing up to 3 to 10 years.term financing up to 3 to 10 years. When new equipment is bought, 50 toWhen new equipment is bought, 50 to

80% of value can be financed.80% of value can be financed.

In saleIn sale--leaseback financing theleaseback financing theentrepreneur "sells" the equipment to aentrepreneur "sells" the equipment to alender and then leases it back.lender and then leases it back.


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Real estate loansReal estate loans

They are easily obtained to financeThey are easily obtained to finance

LandLand PlantPlant

BuildingBuilding

usually up to 75% of value.usually up to 75% of value.


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Cash FlowFinancingCash FlowFinancing

Installment loansInstallment loans

Installment loans can be obtained by aInstallment loans can be obtained by a

going venture with a track record of salesgoing venture with a track record of salesand profits.and profits.

These funds are used to cover workingThese funds are used to cover workingcapital needs, usually for 30 to 40 days.capital needs, usually for 30 to 40 days.


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ContdContdStraight commercial loansStraight commercial loans In this hybrid of the installment loan,In this hybrid of the installment loan,

funds are advanced to the company for 30funds are advanced to the company for 30to 90 days.to 90 days.

These selfThese self--liquidating loans are used forliquidating loans are used forseasonal financing.seasonal financing.


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ContdContdLongterm loansLongterm loans These loans are usually only available toThese loans are usually only available to

more mature companies.more mature companies. Funds are available for up to 10 years withFunds are available for up to 10 years with

the debt repaid according to a fixedthe debt repaid according to a fixedinterest and principle schedule.interest and principle schedule.


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ContdContdCharacter loansCharacter loans When the business does not have assetsWhen the business does not have assets

to support a loan, the entrepreneur mayto support a loan, the entrepreneur mayneed a character loan.need a character loan.

These loans must have assets of anThese loans must have assets of anindividual pledged as collateral, or haveindividual pledged as collateral, or havethe loan cosigned by anotherthe loan cosigned by another


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BANK LENDING DECISIONSBANK LENDING DECISIONSBANK LENDING DECISIONSBANK LENDING DECISIONS


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BANK LENDING DECISIONSBANK LENDING DECISIONS

Banks are very cautious in lendingBanks are very cautious in lendingmoney, particularly to new ventures.money, particularly to new ventures.

Commercial loan decisions are made onlyCommercial loan decisions are made onlyafter the loan officer does a carefulafter the loan officer does a carefulreview of the borrower.review of the borrower.

Decisions are made based onDecisions are made based onquantifiable and subjective judgments.quantifiable and subjective judgments.


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BANK LENDING DECISIONSBANK LENDING DECISIONS

Bank lending decisions can be summarized byBank lending decisions can be summarized bythe five Csthe five Cs

1.1. CharacterCharacter

2.2. CapacityCapacity

3.3. CapitalCapital

4.4. CollateralCollateral

5.5. ConditionsConditions


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SMALLBUSINESS ADMINISTRATIONSMALLBUSINESS ADMINISTRATIONLOANSLOANS

When an entrepreneur is unable to secure aWhen an entrepreneur is unable to secure aregular commercial bank loan, an alternative isregular commercial bank loan, an alternative isa Small Business Administration (SBA)a Small Business Administration (SBA)Guaranty LoanGuaranty Loan..

The SBA guarantees that 80% of the loan willThe SBA guarantees that 80% of the loan willbe repaid to the bank by the SBA if thebe repaid to the bank by the SBA if thecompany cant pay.company cant pay.

This allows the bank to make loans that haveThis allows the bank to make loans that have

higher risks.higher risks. This procedure is the same as for securing aThis procedure is the same as for securing a

bank loan, except that government forms andbank loan, except that government forms anddocumentation are required.documentation are required.


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SMALLBUSINESS ADMINISTRATION LOANSSMALLBUSINESS ADMINISTRATION LOANSContdContd

Both long and shortBoth long and short--term loans can be guaranteed by the SBAterm loans can be guaranteed by the SBA.. A maximum loan period of 15 years on existing buildings and 20A maximum loan period of 15 years on existing buildings and 20

years on new construction can be obtained.years on new construction can be obtained. For inventory, equipment, or working capital, a maximum of 10For inventory, equipment, or working capital, a maximum of 10

years is available.years is available.

Once the application has been filled out, it usually is processedOnce the application has been filled out, it usually is processedwithin 15 days.within 15 days.

There are additional reporting requirements beyond those for aThere are additional reporting requirements beyond those for aconventional bank loan.conventional bank loan.

Since there is no difference in interest rates charged betweenSince there is no difference in interest rates charged betweenconventional bank loans and SBAconventional bank loans and SBA--guaranteed loans, a commercialguaranteed loans, a commercial

bank loan is usually better.bank loan is usually better. A good banking relationship is very valuable as the ventureA good banking relationship is very valuable as the venture

grows.grows.


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SMALLBUSINESS ADMINISTRATION LOANSSMALLBUSINESS ADMINISTRATION LOANSContdContd

For most SBA loans, there is no limit to the amount ofFor most SBA loans, there is no limit to the amount ofloan money requested, but there is practical limit of $1loan money requested, but there is practical limit of $1million.million.

The vast majority of small businesses are eligible forThe vast majority of small businesses are eligible for

financial assistance from the SBA.financial assistance from the SBA.

As defined by the Small Business Act, a small businessAs defined by the Small Business Act, a small businessis independently owned and operated and notis independently owned and operated and notdominant in its field of operation.dominant in its field of operation.

The size limits of a small business vary from industryThe size limits of a small business vary from industryto industry.to industry.

The proceeds of the loans can be used for almost anyThe proceeds of the loans can be used for almost anybusiness purpose.business purpose.

The interest rates are negotiated between theThe interest rates are negotiated between theentrepreneur and the bank, but there are subject toentrepreneur and the bank, but there are subject toSBA maximums.SBA maximums.


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Sources of CapitalSources of CapitalSources of CapitalSources of Capital


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R & D LimitedPartnershipR & D LimitedPartnership

This method of financing provides funds fromThis method of financing provides funds frominventors looking for tax shelters.inventors looking for tax shelters.

A typical R&D partnership arrangement isA typical R&D partnership arrangement is

established with a sponsoring companyestablished with a sponsoring companydeveloping the technology with funds beingdeveloping the technology with funds beingprovided by a limited partnership of individualprovided by a limited partnership of individualinvestors.investors.

Research and development limitedResearch and development limitedpartnerships are particularly good when thepartnerships are particularly good when theproject involves a high degree of riskproject involves a high degree of risk


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R & D LimitedPartnershipR & D LimitedPartnershipContdContd

MajorElementsMajorElements

ContractContract

Sponsoring CompanySponsoring Company Limited PartnersLimited Partners

General PartnersGeneral Partners


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Procedure:Procedure:

(1) Funding Stage(1) Funding Stage

contract is established and the moneycontract is established and the moneyinvestedinvested

(2) Development Stage(2) Development Stage

The company performs the actual researchThe company performs the actual research

(3) Exit Stage(3) Exit Stage

In which with both parties reaping the benefitsIn which with both parties reaping the benefits


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BenefitsBenefits

It provides the needed funds with aIt provides the needed funds with a

minimum of equity dilutionminimum of equity dilution The sponsoring companys financialThe sponsoring companys financial

statements are strengthenedstatements are strengthened

It reduces the riskIt reduces the risk


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CostsCosts There is considerable time and moneyThere is considerable time and money

involved.involved.

Most R&D limited partnerships areMost R&D limited partnerships areunsuccessful.unsuccessful.

The restrictions placed on the technologyThe restrictions placed on the technologymay be substantial.may be substantial.

The exit from the partnership may beThe exit from the partnership may betoo complex.too complex.


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SBIR Grant ProgramSBIR Grant Program(Small Business Innovation Research)(Small Business Innovation Research)

SBIR is a competitive grant programSBIR is a competitive grant program

provides $1billion per year to smallprovides $1billion per year to small

businesses for early stage andbusinesses for early stage andDevelopment projectsDevelopment projects


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SBIR Grant ProgramSBIR Grant Program(Small Business Investment Research)(Small Business Investment Research)

The SBIR grant program has three phases.The SBIR grant program has three phases.

Phase IPhase I awards are up to $50,000 for six months ofawards are up to $50,000 for six months offeasibilityfeasibility--related experimental or theoretical research.related experimental or theoretical research.

Phase IIPhase II is the principal R&D effort. Phase II awardsis the principal R&D effort. Phase II awardsare up to $500,000 for 24 months of further researchare up to $500,000 for 24 months of further researchand development. The money is to be used to developand development. The money is to be used to developprototype products. Inprototype products. In

Phase IIIPhase III funds from other sources, such as the privatefunds from other sources, such as the privatesector or regular government contracts, are needed tosector or regular government contracts, are needed to

commercialize the developed technologies.commercialize the developed technologies.


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PRIVATEPLACEMENTPRIVATEPLACEMENT

It includes the investors from family, friends orIt includes the investors from family, friends orwealthy individualswealthy individuals

An investor usually takes an equity positionAn investor usually takes an equity position

and can influence the nature of the business toand can influence the nature of the business toan extent.an extent.

The investors degree of involvement isThe investors degree of involvement isimportant for the entrepreneur to consider.important for the entrepreneur to consider.

Some investors want to be actively involved inSome investors want to be actively involved inthe business, and others are more passive.the business, and others are more passive.


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Public vs.Private OfferingsPublic vs.Private Offerings

PublicOfferingsPublicOfferings Sell stock to the PublicSell stock to the Public To fund current and future operationsTo fund current and future operations

To raise a firms profile making it easier toTo raise a firms profile making it easier toattract highattract high--quality customers, alliancequality customers, alliance

partners, and employeespartners, and employees Serve as liquidity event to provides aServe as liquidity event to provides a

mechanism for the stockholders (investorsmechanism for the stockholders (investorsalso) to cash out their investmentsalso) to cash out their investments

Creates another form of currency that can beCreates another form of currency that can beused to grow the company by paying for itused to grow the company by paying for itwith stock rather than cashwith stock rather than cash


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PublicOfferingsPublicOfferings Sell stock to the PublicSell stock to the Public

Public offerings involve much time and expense.Public offerings involve much time and expense.(Needs Underwriter or agent for issuing stocks(Needs Underwriter or agent for issuing stocks InvestmentBank)InvestmentBank)

Bank serves as advocate/advisorBank serves as advocate/advisor Bank and Firm must agree upon the amount of capitalBank and Firm must agree upon the amount of capital

needed, the type of stocks to be issued, the price ofneeded, the type of stocks to be issued, the price ofthe stock, cost of issuing stock to the firmthe stock, cost of issuing stock to the firm

Preliminary Prospectus issuedPreliminary Prospectus issued describes offerings thedescribes offerings thegeneral publicgeneral public

SEC approvalSEC approval Final prospectus is issuedFinal prospectus is issued


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PublicOfferingsPublicOfferings Sell stock to the PublicSell stock to the Public

Registering the securities with the SecuritiesRegistering the securities with the Securitiesand Exchange Commission (SEC) requires aand Exchange Commission (SEC) requires anumber of reporting procedures once the firmnumber of reporting procedures once the firmhas gone public.has gone public.

This public process was established to protectThis public process was established to protectunsophisticated investors.unsophisticated investors.


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Private OfferingPrivate Offering It is faster and less costly than other funding.It is faster and less costly than other funding.

Direct ale of an issue of securities to a largeDirect ale of an issue of securities to a largeinstitutional investorinstitutional investor

When private public offeringWhen private public offering Not publicNot publicoffering take placeoffering take place

These sophisticated investors still need accessThese sophisticated investors still need access

to material information about the company.to material information about the company. No prospectus is requiredNo prospectus is required


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Regulation DRegulation D

Regulation D contains:Regulation D contains:

A number of broad provisions designedA number of broad provisions designed

to simplify private offerings.to simplify private offerings. General definitions of what constitutes aGeneral definitions of what constitutes a

private offering.private offering.

Specific operating rulesSpecific operating rules--Rule 504, RuleRule 504, Rule505, and Rule 506.505, and Rule 506.


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Regulation DRegulation DContdContd

Rule 504Rule 504 Under Rule 504 a company can sell up to $500,000 ofUnder Rule 504 a company can sell up to $500,000 of

securities to any number of investors in any 12securities to any number of investors in any 12--monthmonthperiod.period.

Rule 505Rule 505 Rule 505 permits the sale of $5 million of unregisteredRule 505 permits the sale of $5 million of unregistered

securities in the private offering in any 12securities in the private offering in any 12--monthmonthperiod.period.

These can be sold to any 35 investors, and anThese can be sold to any 35 investors, and anunlimited number of accredited investorsunlimited number of accredited investors

Rule 506Rule 506 Rule 506 allows an issuing company to sell anRule 506 allows an issuing company to sell an

unlimited amount of securities to 35 investors and anunlimited amount of securities to 35 investors and anunlimited number of accredited investorsunlimited number of accredited investors


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Regulation DRegulation DContdContd

Accredited InvestorsAccredited Investors

It includes:It includes:

(I)(I) Institutional investorsInstitutional investors

(ii)(ii) Investors who purchase over $150,000 ofInvestors who purchase over $150,000 ofthe issuers securities.the issuers securities.

(iii) Investors whose net worth is $1 million.(iii) Investors whose net worth is $1 million.

(iv) Investors with incomes in excess of $200,000(iv) Investors with incomes in excess of $200,000in the last two years.in the last two years.

(v)(v) Directors, officers, and general partners ofDirectors, officers, and general partners of

the issuing companythe issuing company..


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BOOTSTRAPFINANCINGBOOTSTRAPFINANCING

It is hard for new firm to generate fundsIt is hard for new firm to generate funds

It is the use of creativity, ingenuity, andIt is the use of creativity, ingenuity, andany means possible to obtain resourcesany means possible to obtain resourcesother than borrowing money or raisingother than borrowing money or raisingcapital from traditional sourcescapital from traditional sources


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Example: Minimizing personal expensesExample: Minimizing personal expensesand putting all profits back into theand putting all profits back into the

businessbusiness Avoiding unnecessary expenses, such asAvoiding unnecessary expenses, such as

lavish office space or furniturelavish office space or furniture

Leasing equipment rather than buyingLeasing equipment rather than buying

Sharing office space or employees withSharing office space or employees withother businessother business


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It is important when capital is very expensiveIt is important when capital is very expensiveCostof Outside CapitalCostof Outside Capital It takes time to rise outside capital when theIt takes time to rise outside capital when the

company can least afford the time.company can least afford the time. Outside capital often decreases a firms driveOutside capital often decreases a firms drive

to make money.to make money. The availability of capital increases the impulseThe availability of capital increases the impulse

to spend.to spend. Outside capital can decrease the companysOutside capital can decrease the companys

flexibility and hamper the creativity of theflexibility and hamper the creativity of theentrepreneur.entrepreneur.


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Capital Sources inPakistanCapital Sources inPakistanCapital Sources inPakistanCapital Sources inPakistan


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PROVINCIALLEVELPROVINCIALLEVELINSTITUTIONSINSTITUTIONS

Punjab Small Industries Corporation(PSIC)Punjab Small Industries Corporation(PSIC)

In Punjab PSIC was established in 1972 as anIn Punjab PSIC was established in 1972 as anautonomous body for the promotion and developmentautonomous body for the promotion and development

of the smallof the small--scale industries in the province.scale industries in the province. The PSIC covers the critical areas of investmentThe PSIC covers the critical areas of investment

promotion and provision of credits for setting up newpromotion and provision of credits for setting up newindustries and modernization of the existing ones.industries and modernization of the existing ones.

It also promotes the common facility center,It also promotes the common facility center,technology transfer, guidance, handicraftstechnology transfer, guidance, handicraftsdevelopment and design facilities.development and design facilities.

P j b S ll I d t i C tiP j b S ll I d t i C ti


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Punjab Small Industries CorporationPunjab Small Industries Corporation(PSIC) Contd(PSIC) Contd

It provides following type of services:It provides following type of services:

A) FinancingandLoansA) FinancingandLoans

PSIC is providing two types of loans to its clients,PSIC is providing two types of loans to its clients,

working capital and capital investment loansworking capital and capital investment loansB) Industrial EstatesB) Industrial Estates

PSIC has developed 14 industrial estates in variousPSIC has developed 14 industrial estates in variousareas of the Punjabareas of the Punjab

C) Services andProgramsC) Services andPrograms PSIC has also launched Rural IndustrializationPSIC has also launched Rural Industrialization

Program to control unemployment and strengthenProgram to control unemployment and strengthenthe marginal household income.the marginal household income.

Si dh S ll I d t i C tiSi dh S ll I d t i C ti


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Sindh Small Industries CorporationSindh Small Industries Corporation

(SSIC)(SSIC)

SSIC was established in 1972SSIC was established in 1972 It has motives to indulge into promotionalIt has motives to indulge into promotional

activities of smallactivities of small--scale industries in Sindh.scale industries in Sindh. The objectives of SSIC include financialThe objectives of SSIC include financial

assistance, education of craftsman, census andassistance, education of craftsman, census andsurvey of cottage and small industries,survey of cottage and small industries,procurement and distribution of raw materialsprocurement and distribution of raw materialsto artisans and craftsman.to artisans and craftsman.

SSIC was also involved in the Prime MinistersSSIC was also involved in the Prime Ministersselfself--employment scheme for the dispersal ofemployment scheme for the dispersal ofthe micro credits.the micro credits.


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Sindh Small Industries CorporationSindh Small Industries Corporation

(SSIC)(SSIC) ContdContd

It provides the following services:It provides the following services:

Industrial Estates and ColoniesIndustrial Estates and Colonies The SSIC has established 17 industrial estates inThe SSIC has established 17 industrial estates in

Sindh.Sindh. Total number of plots developed there are 1938Total number of plots developed there are 1938 There are six different craftsman colonies establishedThere are six different craftsman colonies established

having 92 shops.having 92 shops.

Financing SchemesFinancing Schemes The SSIC also launched a credit scheme in 88,/89.The SSIC also launched a credit scheme in 88,/89. In October 1992, a selfIn October 1992, a self--employment scheme wasemployment scheme was

started for locally manufactured machinerystarted for locally manufactured machinery


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Small Industries DevelopmentBoard(SIDB) NWFPSmall Industries DevelopmentBoard(SIDB) NWFPContdContd

It provides the following services:It provides the following services:Training CentersTraining Centers SIDB has established carpet centers in five cities ofSIDB has established carpet centers in five cities of

NWFPNWFP

DevelopmentPrograms andModel ProjectsDevelopmentPrograms andModel Projects SIDB has also launched various women developmentSIDB has also launched various women development

programsprogramsIndustrial EstatesIndustrial Estates SIDB has established 9 industrial estatesSIDB has established 9 industrial estates

Financial AssistanceFinancial Assistance SIDB is also managing different credit schemes forSIDB is also managing different credit schemes for

small industriessmall industries


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Directorate of IndustriesDirectorate of Industries

(Balochistan)(Balochistan)

The directorate of industries was formedThe directorate of industries was formedin 1976in 1976

It looks after all the promotionalIt looks after all the promotionalschemes for SMEs.schemes for SMEs.

Further more, the directorate is alsoFurther more, the directorate is alsoinvolved in providing various kinds ofinvolved in providing various kinds of

advisory and consultancy services.advisory and consultancy services.


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Small Business FinanceSmall Business FinanceCorporation(SBFC)Corporation(SBFC)

It was established in 1972 as a federal entity.It was established in 1972 as a federal entity.

The main aim was at the time of establishment,The main aim was at the time of establishment,to assist small entrepreneurs for selfto assist small entrepreneurs for self--

employment and setting up cottage industry.employment and setting up cottage industry.

The mark up was kept lower; the majorityThe mark up was kept lower; the majoritylending was towards selflending was towards self--employment leavingemployment leavingonly 2% for small industries.only 2% for small industries.


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Restructuring SBFCRestructuring SBFC

The management took over in year 2000 andThe management took over in year 2000 andrestructured the entire corporation.restructured the entire corporation.

The restructuring was based on the facts thatThe restructuring was based on the facts that

SBFC has deviated from its main aim resulting inSBFC has deviated from its main aim resulting ina weak balance sheet.a weak balance sheet.

There were 1400 employees at 96 branches.There were 1400 employees at 96 branches.The internal control and management wasThe internal control and management washighly ineffective with poor quality of humanhighly ineffective with poor quality of humanresources, poor work ethics, poor infrastructureresources, poor work ethics, poor infrastructureand nonand non--existence of training and developmentexistence of training and developmentculture.culture.


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Regional DevelopmentFinanceRegional DevelopmentFinance

CorporationCorporation

The Regional Development Finance Corporation wasThe Regional Development Finance Corporation wasestablished in 1985established in 1985

The main objective are to promote the industrializationThe main objective are to promote the industrializationof the less developed areas of the country.of the less developed areas of the country.

RDFC is a multiRDFC is a multi--product financial institution.product financial institution. It participates in money market, capital market andIt participates in money market, capital market and

micro credit delivery.micro credit delivery.

Besides financing of medium to large sized industrialBesides financing of medium to large sized industrial

concerns RDFC has been involved in disbursing microconcerns RDFC has been involved in disbursing microand small sized loans.and small sized loans.


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Industrial DevelopmentBankofIndustrial DevelopmentBankof

PakistanPakistan

IDBP is Pakistans one of the oldest developmentIDBP is Pakistans one of the oldest developmentfinancing institutionfinancing institution

Its primary objective is to extend term financeIts primary objective is to extend term finance

for investment in the manufacturing sectors infor investment in the manufacturing sectors inthe economy.the economy.

As a part of its services the bank offers businessAs a part of its services the bank offers businessdevelopment assistance through providingdevelopment assistance through providinginformation on potential smallinformation on potential small--scale investmentscale investmentprojects. In this regard numerous preprojects. In this regard numerous pre--feasibilityfeasibilitystudies have been developed for identification ofstudies have been developed for identification ofviable sub sectors.viable sub sectors.

9-a-financing or funding

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