Investment Proposition - Raising capital is a foundational...

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Raising capital is a foundational business activity. Key sources of capital include (Borrowing Money, 2009) Owner’s resources/savings; Friends and relatives; Banks and non-bank lenders; Angel investors and venture capital firms. Borrowing Money: what The Herbal Site should know upfront? There is no such thing as 100% financing There are not government grants to help you start a for-profit business SBA does not lend money Your credit history is important A lender will most likely require a personal guarantee What a lender will want to know: Specific purpose of the loan Loan amount you are requesting When and how long you will need the funds? How the loan will be repaid? What collateral can be used? Will the business owners provide a personal guaranty?
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Identification and use of external sources of funding The Herbal Site has a conservative debt policy that is justified on the ground that (Optimizing financial management, 2009): (a) It minimizes financial risk; (b) It provides financial flexibility; (c) It gives independence from the financial institutions. The Herbal Site desires to maintain high credit worthiness for their bonds; therefore, it may employ very little or no debt. Managers should realize that financing policy should not be based on subjective considerations, unverified assumptions and externally determined criteria (Optimizing financial management, 2009). . For this growing profitable firm, too many obsessions with risk effects of debt are not desirable, as debt hardly poses a bankruptcy threat. Stability of firm's earnings is an important determinant of its debt policy (Optimizing financial management, 2009). In formulating the corporate financing policy, capital market considerations are
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This note was uploaded on 03/26/2012 for the course BUSINESS GM560 taught by Professor Fields during the Summer '10 term at Keller Graduate School of Management.

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Investment Proposition - Raising capital is a foundational...

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