Category Archives: San Antonio Business Lawye

Debt Financing for Businesses: A Simple Guide for Smart Growth

What is debt financing?

  • Companies, just like people, sometimes need extra money to buy cool stuff or do big projects.
  • Instead of saving up for ages, they can borrow money (called “debt”) and promise to pay it back later, plus a little extra (that’s the “interest”).
  • This is way faster than saving for everything, and helps companies grow!

Types of Debt Financing

  1. Bank Loans:
  • This is the classic “go to the bank” option.
  • The bank gives you a set amount of money, and you pay it back in regular payments (like your allowance, but bigger chunks).
  • Example: A bakery needs $20,000 for a new oven. They get a bank loan and pay it back over five years.

 

2.  SBA Loans:

  • These loans are like bank loans, but the “SBA” (Small Business Administration) helps make them happen.
  • The government says, “Hey bank, lend to this smaller company, and we’ll make it less risky for you.”
  • It’s great for new or smaller businesses that might have trouble getting a traditional loan on their own.

SBA 7(a) Loans

  • The most popular SBA loan: This is great for all sorts of business needs.
  • Max Amount: Up to $5 million
  • Examples of Use:
    • Buying equipment or machinery
    • Buying land or buildings
    • Hiring more people
    • Refinancing existing business debt

SBA 504 Loans

  • Focused on big stuff: These loans are for major fixed assets like fancy machinery or buying a whole building.
  • Max Amount: Up to $5 million (up to $5.5 million for certain energy-efficient projects or manufacturing).
  • Example of Use: A factory needs to buy a huge, expensive machine to make more products.

SBA Microloans

  • Helping smaller businesses get off the ground: These loans are for startups or businesses needing just a bit of extra cash.
  • Max Amount: Up to $50,000
  • Examples of Use:
    • Buying supplies and inventory
    • Renting a small workspace
    • Marketing your new business

3.  Mezzanine Debt

Hybrid Nature:

  • Mezzanine debt is like a blend of regular debt (bank loans) and equity (ownership in the company).
  • Lenders give the company money, but they also get something called “warrants.”
  • Warrants are the right to buy shares in the company at a set price later on. This makes it potentially more rewarding for the lender if the company does well.

Position in the Company’s Finances:

  • “Mezzanine” means “middle” – this debt sits in the middle of a company’s capital structure:
    • Senior Debt: Traditional loans from banks are on top. They get paid back first if something bad happens.
    • Mezzanine Debt: Sits below senior debt – riskier for the lender.
    • Equity: The owners’ stake in the company is at the bottom.

Why Companies Use It:

  • Growth: Companies that are growing quickly but don’t want to sell a big chunk of ownership may like this option.
  • Flexibility: Mezzanine debt can have more flexible repayment terms than traditional loans.
  • When banks get nervous: If a company is considered a bit riskier, traditional lenders might shy away. Mezzanine lenders are more open to risk in exchange for potential rewards.

The Downside:

  • Expensive: Mezzanine debt usually has higher interest rates than bank loans because the lenders take on more risk.
  • Potential Dilution: Those “warrants” the lenders get could mean existing owners have a smaller share of the company if the warrants are exercised.

Example: A hot new app company needs a ton of cash to make their app even better. Mezzanine debt lets them do that.

Other Types of Debt:

  1. Bonds:
  • Companies basically sell ‘IOUs’ to a bunch of investors.
  • Investors give money now, company pays it back later (plus interest).
  • Example: A big car maker might need billions to build a new factory. They issue bonds to get that money.
  1. Lines of Credit
  • Think of it like a company credit card.
  • The lender says, “You can borrow up to X amount whenever you need it.”
  • Great for unexpected expenses or when cash flow is up and down.
  • Example: A construction company gets busy sometimes and slow other times. They have a line of credit to make sure they can pay workers.

Important Things to Remember

  • Debt is NOT free money! You gotta pay it back, plus that extra “interest.”
  • Companies have to be careful not to borrow too much or they might not be able to make the payments.
  • Just like you choose your friends carefully, companies must pick the right type of debt for what they need!

GREAT EXPECTATION PRECEDES GREAT SUCCESS

GREAT EXPECTATION PRECEDES GREAT SUCCESS

High expectation always precedes high achievement. You’re as small as your controlling desires, or as great as your dominant aspirations.

Once your mind stretches to a new idea it never goes back to its original dimensions.

Think little goals and you can expect little achievement. Think big goals and you’ll win big success. The first ingredient of your success is to dream a great dream.

You must dream big and think big to be big.

YOUR SUCCESS DEPENDS ON USING NOT OPPOSING

YOUR SUCCESS DEPENDS ON USING NOT OPPOSING

The world is primarily constituted on the basis of harmony.  Everything works in cooperation with something else. 

Personal relationships are the fertile soil from which all advancement, all success, all achievement in real life grows. 

Put yourself in another’s place. Only then will you know why they think and do certain things. Once you understand how quickly people will grant your requests when those requests appeal to their self interest, you can have practically anything you go after. 

It’s through cooperation, not conflict, that you’ll achieve your greatest success.

 

PURSUE YOUR DREAMS AND YOU’LL ATTAIN THEM

PURSUE YOUR DREAMS AND YOU’LL ATTAIN THEM

When you’re sure you’re on the right road to success you don’t have to plan your journey too far ahead.

Don’t burden yourself with doubts and fears as to the obstacles that may bar your progress.

You don’t need to know all your answers in advance. Just have a clear idea of the goal you want to reach.

You can only take one step at a time. If you can muster up the courage to begin, you’ll find the courage to succeed.

It’s the job you never start that always takes the longest to finish.

Eighty percent of success is in showing up.

SUCCESS IS THE RESULT OF WELL DIRECTED ENERGY

SUCCESS IS THE RESULT OF WELL DIRECTED ENERGY

The first rule of success, and one that supersedes all others, is to have energy.

It’s important to know how to concentrate it. Focus your energy on important matters instead of frittering it away on meaningless things.

Nothing will add more power to your life then concentrating all your energies on a limited set of goals.

You must focus the full power of all you are on what you have a burning desire to achieve if you truly want to be successful.

Gather in your resources, rally all your faculties, marshal all your energies, focus all your capacities upon attaining your objectives.

You must be single minded, and drive for the things you have decided upon.

The sun’s rays do not burn until brought to a focus.

MAKING CHOICES IS YOUR GREATEST POWER

MAKING CHOICES IS YOUR GREATEST POWER

At any time you can decide to alter the course of your life. 

No one can ever take that away from you. 

You can do what you want to do and be who you want to be. 

Nature is constantly at work around you. Character and destiny are her handiwork. She gives you love and hate, jealousy and reverence. 

You have the power to choose which impulse you follow. 

While your character is formed by your circumstances, your desires can shape those circumstances. The one thing over which you have absolute control are your own thoughts. 

It is this that puts you in a position to control your own destiny. 

Your greatest power is the power to choose.

THERE ARE NO EASY ROADS TO SUCCESS

THERE ARE NO EASY ROADS TO SUCCESS

Whatever you want in life, you must give up something to get it. The greater the value, the greater the sacrifice required of you.

Everything has a price. There’s a price to pay if you want to make things better, and a price to pay for just leaving things as they are.

Nothing worthwhile ever comes easily. Work, continuous work and hard work, is the only way to accomplish results that last.

Use your imagination more than your memory to achieve success.

The highway to success is a toll road. There is no success at bargain basement prices.

YOUR CHOICES ARE UNLIMITED

YOUR CHOICES ARE UNLIMITED

You don’t have to buy from anyone. You don’t have to work at any particular job. You don’t have to participate in any given relationship. 

You can choose. 

You steer the course you choose in the direction of where you want to be today, tomorrow, or in a distant time to come. 

You hold the tiller. 

You can decide to alter the course of your life at any time. No one can ever take that away from you. You can decide what you want and go after it. 

It’s always your next move.

YOU MUST DREAM BIG AND THINK BIG TO BE BIG

YOU MUST DREAM BIG AND THINK BIG TO BE BIG

High expectation always precedes high achievement. 

You’re as small as your controlling desires, or as great as your dominant aspirations. 

Once your mind stretches to a new idea it never goes back to its original dimensions. 

Think little goals and you can expect little achievement. Think big goals and you’ll win big success. 

The first ingredient of your success is to dream a great dream.

 

YOU CAN ACHIEVE ANYTHING

YOU CAN ACHIEVE ANYTHING

The only thing that stands between you and what you want from life, is simply the will to pursue it and the faith to believe that it is possible.

You can have anything on earth that you want, once you mentally accept the fact that you can have it.

If you want success, begin thinking of yourself as a success. The feeling of being successful has to come first.

If you have a deep inner conviction that you will always have all that you need, if you actually feel prosperous, it will be so.

Only your mind sets your limits.