University:
Boston University
Course:
ENG ME 305 | Mechanics of Materials
Academic year:

2024
Views:

422

Pages:

17
Author:

King Mata

• • • • • • • • Types of Financing (that you may or may not have heard of) Non-Recurring Engineering Licensing Angel & FFF SBIR and STTR Revolving Line of Credit Leasing Factoring Bootstrapping What is SBIR? (Small Business Innovation Research) • U.S. Government funding program intended to promote tech innovation through small business grants and contracts • 12 federal agencies allocate 3.2 % of R&D budgets annually to fund small business research and development efforts – ~$3.2 billion minimum spend annually • Applies to for profit U.S owned businesses with under 500 members What is STTR? (Small Business Technology Transfer) • Essentially identical to SBIR except it requires collaboration between business and U.S. non-profit research institution – Research institution will receive minimum of 30% of grant funding • Focus is more on tech transfer between business and research • Out of the 11 federal agencies providing funding for SBIR, 5 also provide funding for STTR program • These agencies’ budgets exceed $1 bil and they reserve 0.45% for STTR – ~$450 mil minimum spend annually Process of SBIR/STTR Financing Phase 1 Proof of Concept and Feasibility Check (establish merit and determine expectations) $50K-250K over 6 months (SBIR) or 12 months (STTR) Phase 2 Research + Development (based on P1 results and commercial potential) $500K-1.5M over two years Phase 3 Commercializatio n No funding (time to make your own money) What are the Differences? SBIR +STTR SBIR ONLY Brief Breakdown of SBIR/STTR Funding per State Top 5 Most Awarded States (2013-2017) 1. California (1074 awards/year) 2. Massachusetts (562 awards/year) 3. Virginia (291 awards/year) 4. Maryland (246 awards/year) 5. Colorado (238 awards/year) Structure of SBIR/STTR Funding • NOT A LOAN - No payback terms required – SBIR is considered a grant or contract for the promotion of innovation in small U.S. tech firms – If contracted, terms are dependent on needs of specific agency • Most IP rights remain with the awarded firm – Depends on if the agency has vested interest in the venture • A commercialization grant, not an equity investment – No shares sold to the government • • • • • • • • Types of Financing (that you may or may not have heard of) Non-Recurring Engineering Licensing Angel & FFF SBIR and STTR Revolving Line of Credit Leasing Factoring Bootstrapping How a Revolving Line of Credit Works • • Business/lendee borrows money up to a certain predetermined credit limit (aka principal) (i.e. business approved to borrow up to $10K at a time) – Can borrow from bank or alternative capital providers based on specific needs Business can spend money within limit indefinitely so long as they either: – Pay off full amount borrowed (in this case, pay off the full $10k) – Pay a minimum payment each month along with interest on loan and carry over your existing balance, continuing (revolving) your ability to borrow money up to credit limit ($10K) These are the same principles as your credit card! [3] How Revolving Credit Works DAY 1 • Bank/credit union authorizes $10,000 Revolving Line of Credit $10,000 DAY 5 DAY 15 • Business repays • Business spends $3,000 + interest $4,000 • Begin accruing interest accrued on spent funds DAY 30 • Business spends $8,500 DAY 45 • Business repays bank/credit union in full, completing their agreement Line of credit balance $9,000 $6,000 $500 $0 Revolving Line of Credit Unique Features • Immediate borrowing as need arises, much easier than standard loan – Can borrow and repay without credit application for each transaction • Generally have higher interest rates and lower limits than typical loans • No set end date: must pay off full credit limit to exit • Fluctuating—Account balance replenishes as loan is repaid. • Flexible—No scheduled payment of principal Revolving Line of Credit Financing Uses Finance day-to-day operations, primarily: 1. Inventory Financing (loan used to purchase products that will not be sold immediately) – Products purchased are collateral for loan 2. Payroll 3. Unexpected Cash Needs – Time sensitive opportunities or purchases – Atypical lack of revenue 4. If hard to obtain traditional business loans Do not want to use for long-term financing • • • • • • • • Types of Financing (that you may or may not have heard of) Non-Recurring Engineering Licensing Angel & FFF SBIR and STTR Revolving Line of Credit Leasing Factoring Bootstrapping Leasing A method of financing between an owner (Lessor) of property and a firm (Lessee) employing a contract covering the possession and use of property, plant or equipment (PP&E) at a given rent for a stated length of time. Purchasing Asset vs. Leasing Asset Manufacturer Manufacturer/Lessor Manufacturer/Lessor Purchase the Asset Finance Lease the Asset Operating Lease the Asset You own and use asset You use asset You use asset HOWEVER HOWEVER HOWEVER You do not own asset but must maintain it. Pay lessor periodically/in installments, lease is non-cancellable and typically long term You do not own asset but lessor will maintain it. Pay lessor periodically, lease is cancellable and typically shorter term (What most of us do today) You must pay manufacturer full cost of asset (PP&E) Lease Structures Financing/Capital Lease LESSOR (Legal ownership) ▪ LESSEE (User of Asset) ▪ ▪ ▪ ▪ ▪ CONTRACT ▪ ▪ ▪ ▪ Make equipment available for use in return for, at minimum, rental fees. Expect to recover the entire acquisition costs plus a return on its investment. Series of payments, which in total exceed the purchase price of the asset acquired. Leases are counted as debt, both in terms of interest and depreciation (can claim depreciation for reduced taxable income) Usually responsible for maintenance, insurance, and applicable taxes. Lessee obtains ownership rights Long-term agreement: Lease covers most if not all of the economic life of the asset (>= 75% of life) Immediate (present) value of lease is >90% of asset’s market value Generally non-cancelable. At the end of lease period lessee has an option to purchase the asset at a price lower than the fair market value. Operating Lease ▪ Supplies equipment to lessee ▪ Responsible for servicing and maintaining the leased equipment. ▪ Series of payments for a specified period of time and when finalized, returns assets. No fixed future commitment. ▪ Similar to most types of business expenditures. ▪ Short Term (less than 75% of useful life of asset.) ▪ Can be cancelled after a specified time period. ▪ At the end of lease period lessor can lease the equipment to someone else or sell the equipment second hand.

Technology Development - SBIR and STTR

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