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SBA Loans – 7a – Express

SBA Loans – 7a – Express

Definition

The express loan programs were designed streamline the lending process for quick turn-around loans for particular groups of borrowers. The SBA also makes lower interest rates available to Express loan borrowers.

Loan Types

1. SBA Express Loans are designed for small business owners. The estimated response time to the application process is within 36 hours.

2. Patriot Express Loans are made available to veterans and active-duty service members to start or expand a small business. These loans secure the lowest interest rates available ranging from 2.25 – 4.75 percent over prime depending on amount and duration.

3. Export Express – see SBA Loans – 7a – Export

SBA Loans – 7a – Export

SBA Loans – 7a – Export

Definition

The export loan programs were designed to assist small business exporters. There are 3 specific types of loans available to help exporters, depending on their need and type of operation.

1. The Export Express Loan Program gets its namesake from its streamlined process which allows lenders to use their own forms and its promise of a response within 36 hours. Funding is available up to $500,000 for any business in operation for at least 12 months and can prove the funds will go toward supporting export development, even if prior year operations did not include exporting revenues. Funds are restricted to only those activities that enhance company exporting capability.

2. Export Working Capital Loans(EWCP) fill the hole left by U.S. banks failing to provide working capital advances on export orders, export receivables, or letters of credit. A 90% guaranty on export loans is available from the SBA with a maximum of $5 million. This program was designed specifically to encourage lenders to make capital available for these companies.

3. The International Trade Loan Program was developed for business that have experienced difficulty because of import competition and are looking for additional funds to make adjustments to remain competitive. Like the EWCP program, a 90% guaranty from the SBA is available on loans up to $5 million.

Sample Term Sheet

Sample Term Sheet

The information contained in this sample is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com
elow you can find a Sample Term Sheet

Contents

TERM SHEET FOR THE PURCHASE AND SALE OF SECURED CONVERTIBLE PROMISSORY NOTE OF XYZ CORPORATION

<DATE>

THIS TERM SHEET (the “Term Sheet”) sets forth the principal terms proposed by _________________________ (the “Investor”) for the purchase of a Convertible Promissory Note from XYZ Corporation, an <State> corporation (the “Company”). These terms when finalized will be memorialized in a binding Convertible Note Purchase Agreement executed between the Company and the Investor along with other documents as described herein.

GENERAL:

Type of Security:
Convertible Note, bearing interest at a simple interest rate of _____ (__%) percent calculated on the basis of a 360-day year consisting of twelve, 30-day months (the “Notes”).

Investors:
The Investor named at the beginning of this Term Sheet, as well as other investors designated by and reasonably acceptable to the Company (collectively, the “Investors”).

Total Amount Invested:
U.S. $____________________.

Closing:
As soon as practicable following the Company¡¦s acceptance of this Term Sheet and execution of all other required documentation designated by the Company but no later than <Date> (the ¡§Initial Closing¡¨). Additional closings may occur at any time following the Initial Closing in the Company¡¦s discretion.

TERMS OF THE NOTES:

Term of Payment:
The day that is one year following the date of the Initial Closing shall be the end of the term of the Note (the “Maturity Date”). All principal and accrued interest under the Note is due and payable on the Maturity Date. The Note may be prepaid at any time by the Company without penalty upon five days prior written notice to the Holder.

Terms of Conversion:
The Note would be convertible on the following terms. In the event the Company consummates, prior to the Maturity Date (as defined below) an equity financing pursuant to which it sells shares of its Series A Preferred Stock (the “Series A Preferred Stock”) with an aggregate sales price of not less than $_____________, including any and all convertible notes which are converted into preferred stock (including the Notes issued under this Note Purchase Agreement), and with the principal purpose of raising capital (a “Qualified Financing”), then the Note shall automatically convert all principal and accrued interest under the Note into the Series A Preferred Stock at __% of the price paid by investors in the Qualified Financing. The Note shall convert into shares of Series A Preferred Stock on the same other terms as the other investors purchasing Series A Preferred Stock in the Qualified Financing.

Liquidity Event:
If a Liquidity Event occurs before repayment or conversion of the Note into equity, the Company will pay the holder of the Note an amount equal to ___% of the outstanding principal amount of the Note plus any accrued interest due under the Note upon the closing of such Liquidity Event. (For example the Holder of a $_________ note earning __% interest, upon a Liquidity Event would be paid $_________ plus accrued interest of __% on $_______.) For purposes of this provision, a “Liquidity Event” shall mean (a) a merger of the Company with or into another entity (if after such merger the holders of a majority of the Company’s voting securities immediately prior to the transaction do not hold a majority of the voting securities of the successor entity), (b) a sale by the Company of all or substantially all of its assets or (c) the closing of the Company’s first firm commitment underwritten public offering of the Company’s common stock registered under the Securities Act of 1933, as amended.

Security and Subordination:
Repayment of the Note would be secured by a first priority security interest in collateral consisting of all of the assets of the Company. The Note shall be subordinated to all indebtedness of the Company to banks, commercial finance lenders, insurance companies, leasing or equipment financing institutions or other lending institutions regularly engaged in the business of lending money (excluding venture capital, investment banking or similar institutions which sometimes engage in lending activities but which are primarily engaged in investments in equity securities), which is for money borrowed, or for the purchase or leasing of equipment in the case of lease or other equipment financing, whether or not secured.

OTHER:

Documentation:
The transaction would be documented by counsel of the

Company with the documents containing the provisions described above and consisting of the following:

  • Note Purchase Agreement;
  • Risk Factor Statement;
  • Convertible Promissory Note; and
  • Security Agreement.

Representations & Warranties:
The Convertible Note Purchase Agreement would contain customary representations from the Company including, without limitation: organization and qualification, execution and delivery, validity and enforceability of agreements, issuance of the Note, no litigation and compliance with laws. Customary representations from the Investor would include without limitation: suitability to invest, restrictions on the securities that will be issued in the event of conversion, “lock-up” provisions related to a potential public offering.

Non-Binding Terms:
Except for the provisions set forth in the captions below entitled ¡§Exclusivity¡¨ and “Expenses,” this Term Sheet is not an offer subject to acceptance or a legally binding commitment by Investor, and no obligation will be created by execution of this Term Sheet unless and until definitive documents have been executed and delivered.

Confidentiality:
The Company shall not disclose the terms of this Term Sheet to any person or entity except for the Company’s accountants and attorneys and other potential Investors acceptable to Investor, without the written consent of Investor.

Expiration:
This Term Sheet expires on _____________, 20__ if not accepted by the Company by that date.

Amendment:
Holders of a majority in interest of the principal amount of the Notes may amend or waive any provision of the Notes and such amendment or waiver shall be binding on all holders of the Notes.

Expenses:
The Company and the Investors will each bear their own legal and other expenses with respect to the transactions contemplated herein.

The undersigned hereby agree to the foregoing terms. This instrument may be executed in one or more counterparts and by facsimile, each of which will constitute an original, and all of which will constitute one and the same instrument.

INVESTOR: ______________________

By:_________________________

ACCEPTED AND AGREED TO AS OF THE DATE SET FORTH BELOW:

THE COMPANY: XYZ CORPORATION, an <State> corporation
By: _____
Name:______
Title:_______

This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com

Venture Capital Firm

Venture Capital Firm

Definition

Venture Capital Firms usually invest in companies that are looking for large investments with potential for high, rapid growth and scalability. They invest large sums of money (usually in the millions of dollars) into startups, usually on the behalf of 3rd party investors. VC Firms are incredibly selective, usually investing in one firm out of several hundred. They tend to look for companies that are already launched and growing, not traditional small businesses in the prelaunch phase.

Venture Capital Firms make their money by owning large stakes of equity in the companies they are invested in. Because this means that they will not be gaining their returns until they sell their shareholdings, profits depend on the company’s growth. With the high risk involved, these firms tend to be deeply interested in the company’s development and give considerable managerial and technical advice and counsel.

Structure

Firms are typically structured as partnerships, the general partners of which serve as the managers of the firm and will serve as investment advisers to the venture capital funds raised. Venture capital firms in the United States may also be structured as limited liability companies, in which case the firm’s managers are known as managing members. Investors in venture capital funds are known as limited partners. This constituency comprises both high net worth individuals, known as venture capitalists, and institutions with large amounts of available capital, such as state and private pension funds, university financial endowments, foundations, insurance companies, and pooled investment vehicles, called fund of fund.

Roles

Within the venture capital industry, the general partners and other investment professionals of the venture capital firm are often referred to as “ venture capitalists” or “VCs”. Typical career backgrounds vary, but broadly speaking venture capitalists come from either an operational or a finance background. Venture capitalists with an operational background tend to be former founders or executives of companies similar to those which the partnership finances or will have served as management consultants. Venture capitalists with finance backgrounds tend to have investment banking or other corporate finance experience.

Although the titles are not entirely uniform from firm to firm, other positions at venture capital firms include:

1. Venture partners – Venture partners are expected to source potential investment opportunities (“bring in deals”) and typically are compensated only for those deals with which they are involved.

2. Principal – This is a mid-level investment professional position, and often considered a “partner-track” position. Principals will have been promoted from a senior associate position or who have commensurate experience in another field such as investment banking or management consulting.

3. Associate – This is typically the most junior apprentice position within a venture capital firm. After a few successful years, an associate may move up to the “senior associate” position and potentially principal and beyond. Associates will often have worked for 1–2 years in another field such as investment banking or management consulting.

4.Entrepreneur-in-residence (EIR) – EIRs are experts in a particular domain and perform due diligence on potential deals. EIRs are engaged by venture capital firms temporarily (six to 18 months) and are expected to develop and pitch startup ideas to their host firm (although neither party is bound to work with each other). Some EIR’s move on to executive positions within a portfolio company.

Venture Capital

Venture Capital

Definition

Venture Capital, often abbreviated as VC, is the financial capital that is invested into startup companies with high-risk and high-potential. It is a division of private equity and is sometimes referred to as “seed money”. Venture Capital is given to companies through the route of Venture capital firms or by individual venture capitalists.

Structure

Venture capital investment is often organized through Venture capital firms. These firms are typically structured as partnerships, the general partners of which serve as the managers of the firm and will serve as investment advisers to the venture capital funds raised. Venture capital firms in the United States may also be structured as limited liability companies, in which case the firm’s managers are known as managing members. Investors in venture capital funds are known as limited partners. This constituency comprises both high net worth individuals and institutions with large amounts of available capital, such as state and private pension funds, university financial endowments, foundations, insurance companies, and pooled investment vehicles, called fund of fund.

Venture Capitalist

Venture Capitalist

Definition

A venture capitalist, also known as VC, is a person or an investment firm that makes venture investments, and these venture capitalists are supposed to bring managerial and technical support as well as capital to the objects of their investments. Venture capitalists possess the core skill to identify novel technologies that have potential to generate high commercial values. Venture capitalists tend to work within venture capital firms and partnerships. Venture capital is typically sought by high-growth startups looking for the next round of funding. These businesses are usually a higher risk, but also have a higher pay off with success. Business seeking this type of funding are usually too small for a bank loan and have a relatively short operating history.

Types

VCs can be classified into different types according to different factors. Some venture capitalists tend to invest in new ideas while others prefer to invest in established companies that need to grow or go public. Some VCs invest solely in certain industries. Others prefer investing locally while others prefer investing nationwide. The expectations of venture capitalists also vary. Some want quick public sales for their invested companies, or expect fast growth. Others look for balance between growth and risk.

Work Part time, Offer Consulting

Work Part time, Offer Consulting

Work Part-Time

Although time will be tight when starting a new business, many entrepreneurs will work part-time to raise money needed for their professional and private lives.

It would be smart if you could find work in the industry you want to start your business in. By finding a complimentary job, you can learn skills and jumpstart ideas from your daily routine that can be applied at your own company. You can also meet people that may have connections that will help you later on in your career – connections to legal advice, web designers, and office supply rentals. If you can build good relationships with your coworkers, they will be far more inclined to help you when your business launches with connections, or even by being your first customers.

Consulting

Many companies can generate extra cash by offering consulting services to other firms. Being an expert in your field, you can use your knowledge to help other struggling small businesses owners through a small fee that you can flip and instead use towards your own efforts.

Besides the obvious extra cash flow, added benefits include learning first-hand what customer needs and desires are. This new knowledge can help to improve your product as well as allow you to create new relationships and networks with other business owners.

Revenue-Based Financing

Revenue-Based Financing

Definition

Business Revenue Financing, also known as Revenue-Based Funding (RBF), is a means of securing funding by giving investors a percentage of total future revenue based on previous (and projected) sales revenue figures. Often described as a hybrid of the traditional equity funding model, it provides the entrepreneur a funding source based on the performance of the company without having to actually sell equity, and at the same time provides the investor the opportunity to benefit directly from company growth without buying equity in the company. Also different from the standard debt model, the entrepreneur also only pays on realized income revenue, so the payments are variable and tied to the company sales numbers. If the company has zero revenue in one month, no money is owed to the investor for that month. RBF is considered a relatively new form of funding and is continuing to gain in popularity.

RBF is good for companies that are selling product but lack assets to secure bank loans. It is also an attractive option for companies with variable revenue and financing needs, as the payments will increase or decrease according to revenue streams, allowing them to vary with your needs. Companies like restaurants, manufacturing, or brick-and-morter-heavy start-ups may not be as good a fit for this type of financing. This type of funding is typically found through angel investors or firms that specialize in RBF.

Advantages

Advantages for investors are the high upside potential without the need for exit to realize return. On the entrepreneurial side, there is no required company evaluation or management guarantees with the contract, and the owner retains full control and ownership of the company. The terms for revenue-based financing are based on previous revenue numbers as well as forecasting. They typically include a set percentage of revenues which is paid out for the life of the company of until an agreed upon overall ceiling cap is reached.

Purchase Order Financing

Purchase Order Financing

Definition

Purchase Order Financing provides entrepreneurs a means of paying a supplier upfront when cash-reserves are not available to fulfill an order. This type of funding is useful for growing companies who may secure a sale but lack sufficient funds to purchase the necessary supplies to fill the order. In this case, a purchase order financing company will supply funds directly to the supplier, typically using a letter of credit. When the end buyers of the product pay the company, the company then re-pays the purchase order financing company for the cost of the material, plus additional fees. Purchase order financing is sometimes thought of as a twist on factoring that has arose over the last few decades

Purchase order financing is particularly useful for wholesale companies that move product directly from supplier to buyer. The duration of the loan is typically 30 days and companies typically charge interest on the loaned money at rates as high as 3.5%/month (annual rate equivalent of more than 40%).
Historically, banks have offered some type of purchase order financing to their longstanding clients, though following the 2008 financial crisis they have become harder for business owners to secure through traditional bank lenders.

Private Equity

Private Equity

Definition

A Private Equity Firm is a firm that manages the investment of equity securities in corporations not listed on the public exchange through various strategies. Each firm employs several Private Equity Funds, which are the projects jointly led by the firms and limited partners. These limited partners are often public or corporate pension funds, foundations, insurance companies, wealthy individuals, etc. Private Equity Firms receive shares in the profits earned from each of the funds they manage as well as administration fees for the investment strategies they engage. PE is normally catered towards more matured companies rather than early stage business.

Private Equity Firms are known to buy and invest in underrated and undervalues companies with little stock power. Once bought, the companies are then removed from the public stock market so that the private equity firms can make shifts in internal procedures and management without releasing information to stockholders. Similar to house-flipping, the private equity firms implement common strategies to renew the company and then will either bring in new investors that will buy the company for a desirable profit, or take the company public again in the stock market.

Common Investment Types

1. Growth Equity (also called growth capital and expansion capital): Investments that focus on slightly matured companies that are looking to grow and restructure their firms, as well as enter new financial markets. These companies are typically stable and sustainable yet lack the capital to head on major projects and expansion efforts. This equity type is structured as either common or preferred stock (although some instances of hybrid structures have been noted).

2. Venture Capital: Investments towards young and fast growing early-stage, high risk/potential startup companies. Read more about Venture Capital at our past blog.

3. Leveraged Buyout Investing (LBO): The strategy of acquiring the controlling majority of a company’s equity or shares through leveraged (borrowed) financials. Attractive buyout candidates include companies that have potential for new upper management, capital assets like buildings and property used for collateral, and depressed value of stock prices. PE Firms finance LBO with a hybrid structure using syndicated loans that deliver revolving credit and high-yield bonds.

4. Recapitalization: The restructuring of debt and equity without disruption to a company’s balance sheet. Generally used by private companies, this form of refinancing issues bonds that increase money which allows for the buying of stocks or paying of dividends.

5. Mezzanine investing: A type of debt financing that allows the lender claimed rights in a company if their loan is not paid back. Frequently used to finance acquisitions and buyouts, mezzanine financing is operated about 6-12 months before a company goes public so that profits from a public offering will repay the debt. This equity type is structured as either debt or preferred stock.