Financing mix: revolving lines, permanent working capital and term financing.
Position | Brief article |
Raiding savings and borrowing on credit cards and home-equity loans are common sources of start-up financing. Capital-intensive businesses are often started with a patchwork of vendor financing, equipment leases and term notes. Once up and running, however, it is prudent to look at refinancing to stabilize the business' financial footing. A skillful business banker will typically recommend a combination of the following financing options in a banking proposal:
Working capital: Revolving lines bridge the gap between funding operating expenses and collection of receivables. Funds can be advanced when needed, paid down when cash is available, then re-advanced when needed again. Banks typically extend revolving line commitments by applying a discount to current receivables and inventory.
Permanent working capital: Growth eats cash because of the increased commitment in current assets. Permanent working capital financing is typically extended in a term loan...
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