Financing Basics for Entrepreneurs: Borrowing for Working Capital and Long-Term Capital Needs

Posted in Entrepreneurship, Small Businesses, Start-up

Working capital is the lifeblood of a successful business. When running a startup, entrepreneurs sometimes rely on their own personal resources to fund the business. An alternative may be to borrow funds through a short-term or long-term loan. These loans offer flexibility to cover day-to-day expenses and support company growth. However, choosing the right option will depend on your specific business needs. In this post, we provide an overview of short-term and long-term loans and key advantages for each.

Meeting Short-Term Business Needs

What is a working capital loan?

As the name suggests, working capital is the money available to operate the immediate and short-term needs of your company. A working capital loan is a short-term (one year or less) line of credit from a bank, credit union, or other alternative lender. This type of loan is intended to finance everyday expenses involving the daily operation of a business.

A working capital loan has a variable rate of interest that is tied to short-term interest rates (APR, LIBOR), and the lender makes a certain amount of money available to the business to draw (i.e., borrow) as necessary.  The borrower only pays interest on what is borrowed.

Why establish a working capital loan?

Because aligning monthly revenue and expenses is hard to achieve, a working capital loan provides ready access to capital to keep a business operating. For example, a working capital loan allows a business to borrow money to pay routine expenses, such as rent, payroll, invoices, taxes, insurance, etc. It also allows a business to borrow money to do things like purchase inventory or equipment or invest in advertising. The business repays the loan over time. This type of loan can help a business owner establish good credit history and good business practices, which can be particularly important for an entrepreneur or first-time business owner.

Short-term loans can be unsecured or secured. For secured loans, lenders will likely require a personal guarantee and/or need to pledge “all assets” (i.e., revenues, receipts, intellectual property rights, contracts, equipment, inventory, etc.). If a default occurs, the lender has the right to these assets.

Key advantages of working capital loans

  • The loan provides an infusion of capital when needed to cover expenses.
  • You maintain control of the business.
  • Often, collateral is not required to secure the loan, although in these circumstances excellent credit history is needed.
  • Borrowers can access money quickly.

Meeting Long-Term Business Needs

What is a long-term capital loan?

A long-term commercial loan is money borrowed for more than one year from a bank, credit union, or other alternative lender. This type of loan has a fixed interest rate that is usually tied to longer-term interest rates (i.e., 3, 5, or 10-year Treasury Rate plus a spread). The borrower pays principal and interest in equal installments over time .

Long-term loans are typically secured. Lenders will likely require a personal guarantee, a pledge of the asset that you acquire with the loan, and/or a pledge of “all assets” (i.e., revenues, receipts, intellectual property rights, contracts, equipment, inventory, etc.). If a default occurs, the lender has the right to these assets.

Why establish a long-term capital loan?

If a business needs to buy capital equipment, buildings, other businesses, or undertake construction projects, a long-term loan may be a better option. All the money is disbursed up front except for construction loans, which are disbursed during the construction period.

Key advantages of long-term capital loans

  • These commercial loans can be made in very large sums, allowing you to cover the cost of larger projects with a single loan.
  • You maintain control of the business.
  • You can get access to funds quickly.
  • You can avoid large payments up front, which can be attractive to most startups.

Summary

Whether you are borrowing to cover daily expenses or to purchase equipment, it may be worth exploring short- and long-term commercial loan options. Regardless of the loan you choose, there are benefits to be had from working capital that supports business growth.

Israeli Startups Continue to Fare Well in 2016

Posted in Start-up

In what has become a staple of lists that review the top startup hubs in the world, a recently published list by Sparklabs Global Ventures has listed Tel Aviv as the number three global startup hub. The list has Tel Aviv right behind Silicon Valley and Stockholm, and ahead of New York City, Los Angeles, London, Berlin and Beijing. With an enormous amount of startups starting their way in Israel every year, it is no wonder the country’s most common nickname is “Startup Nation.” It also comes as no surprise that when the partners at Y Combinator, a leading Silicon Valley based investor that provides seed funding for startups, recently took a whirlwind global tour, a stop in Tel Aviv was on the itinerary.

Greenberg Traurig has a dedicated Emerging Technology Practice and is the only Am Law 100 law firm that maintains multidisciplinary, permanent offices in both Israel and the United States, among many other locations throughout the world. For more information on startups in Tel Aviv or growing your business around the world, please feel free to contact your Greenberg Traurig attorney.

U.S. Market Entry Top 10

Posted in investments, Start-up, Technology, Workforce

uSAOver the last few months I have had the chance to speak to entrepreneurs from Brazil, China, Estonia, France, Germany, Guatemala, Israel, Norway, Singapore and Ukraine seeking to operate and solicit investment here in the U.S.  As an attorney, I’m expected to focus on best legal practices.  They’re indeed important, but perhaps not worth quite so much energy if the company isn’t on a course to succeed as a business.

Among my first questions, I’m curious to know what a company has, why it’s great, who’s willing to pay, and how much.  Then, I explore other challenges facing the business.

For start-up companies that still want to talk, here’s my simplified rundown of business and legal items (for information purposes only, not legal advice):

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USCIS Proposes International Entrepreneur Rule to Spur Innovation and Job Creation

Posted in Entrepreneurship, Visas

On Aug. 26, 2016, U.S. Citizenship and Immigration Services (USCIS) announced a notice of proposed rulemaking for an International Entrepreneur Rule, and provided an advance version of the proposed rule for public review.

According to an announcement from USCIS, the proposed rule will allow the Department of Homeland Security (DHS) to exercise discretion, on a case-by-case basis, to provide parole for foreign entrepreneurs who are directing the development of a startup business entity in the United States and whose involvement in the startup would provide a significant public benefit.  USCIS proposes to amend its regulations in connection with Section 212(d)(5) of the INA to provide a “transparent framework” for the exercise of agency discretion and the case-by-case adjudication of parole requests for start-up entrepreneurs.

In order to be considered for parole under the proposed rule, an immigrant entrepreneur would be required to:

  • Own at least 15 percent of the startup and be actively involved in its operation
  • Have formed the business in the United States within the previous three years.

The entrepreneur must also demonstrate that his or her business the potential for job creation and growth by showing:

  • Investment of a minimum of $345,000 from qualified U.S. investors with success in prior investments
  • The receipt of grants or awards from federal, state, or local government entities.

The proposed rule also provides flexibility for an entrepreneur who may only partially satisfy one or both of the above criteria, by permitting the entrepreneur to provide evidence of the start-up’s potential for growth and job creation.

Under the proposed rule, a qualifying entrepreneur may receive parole for a two-year period, and may be eligible for renewal based upon the success of the start-up.

When finalized, the proposed rule may hold potential for immigrants who find themselves caught in current immigrant visa backlogs, as well as individuals who seek to emigrate from countries that do not have E-1 or E-2 visa status.

Upon publication of the rule in the Federal Register, the public will have 45 days during which to provide comment on the rule.

As we review the text of the proposed rule thoroughly, we will provide additional insights and discussion about the potential opportunities it could present to immigrants in different contexts.

Greenberg Traurig partners with leading internet conference NOAH in Berlin and London

Posted in Cybersecurity, Events, Technology

Greenberg Traurig sponsors the leading internet conference NOAH 2016. In June, over 3,000 attendees including entrepreneurs, investors, corporate executives, networkers and journalists met in Berlin to discuss disruptive trends across industries.

Among the speakers was Rudolph W. Giuliani, who delivered a keynote on cybersecurity together with Bill Morrow, CEO of Quarri Technologies.

The conference was well received, see a summary and impressions of NOAH Berlin.

Our German team also hosted a post-conference reception at their rooftop terrace. More than 250 guests embraced the opportunity to enjoy fantastic views, food and drinks while networking with other investors and technology entrepreneurs.

On Nov. 10 and 11, 2016, NOAH will take place in London. Shareholders and associates of both our German and London office will attend and actively support the conference. Read on for further details about NOAH London.

For further information, please contact Henrik Armah (Shareholder, Corporate/M&A) or Sarah Koch (Events Coordinator).

Cloud Migration Demystified

Posted in Cloud Computing, Cybersecurity, Privacy and Data Security, Technology

Migration is already underway, but some of the world’s largest organizations are still reluctant. They handle proprietary data and a staggering volume of transactions.  They want to marshal information and deliver nuanced results.  But a lack of appreciation for the Cloud’s promise, together with questions surrounding security and cost, make many CTOs and COOs cling to legacy systems.

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At the surface, the Cloud is seemingly straightforward even for occasional users; using encryption and/or password protection, individuals log on to a website, smartphone app, or similar “thin” interface. They may send an email, manage ‘Internet-of-things’ controls, reserve a seat, store a document, access a data base, or subscribe to an online tool for accounting or lead tracking.  While it’s clear that the “back office” intelligence sits someplace else, users probably don’t appreciate the architecture.

Understanding the Cloud’s capabilities and shortcomings is key to a thoughtful migration strategy. Can organizations really save money by replacing their on-premise solutions?  How do they comply with regulations around the world addressing the collection, use and transfer of personal data?  When migrating, do they retain control of their systems?  What about cyber security?  Here’s a simplified description for non-technologists!

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Greenberg Traurig Shareholder Trevor Chaplick to Present The Basics of Cap Tables

Posted in Entrepreneurship, Technology

Chaplick_TrevorAn important part of any angel or venture financing is the pro forma capitalization table (referred to as the “Cap Table”). On Wednesday, Sept. 14 from 12:00 pm -1:00pm EDT, Greenberg Traurig shareholder Trevor Chaplick will present “The Basics of Cap Tables,” a webinar hosted by the Angel Capital Association.  A Cap Table is typically prepared as an excel spreadsheet, and while it can be daunting for new angels and entrepreneurs to understand, the Cap Table plays a critical role in such financings. This highly informative webinar provides an overview of a standard Cap Table, its purpose, and how it is used.  Learn what a Cap Table generally looks like at various stages of company growth, the investor conventions used in creating Cap Tables, what happens when new money comes into the company and the impact of dilution on various classes of stock. This webinar will provide a primer for new angels and a refresher for those more experienced. Registration for The Basics of Cap Tables webinar is open.

Greenberg Traurig is an annual partner of the Angel Capital Association. This webinar is part of ACA’s Rising Tide Education Program which was created to increase diversity of the angel community by educating under-represented groups. 

 

Patent Eligibility After ‘Alice’

Posted in Patent, Patent Strategy

Nearly every patent practitioner has been impacted by the U.S. Supreme Court’s decision in Alice Corp. v. CLS Bank International, 134 S.Ct. 2347 (2014). Alice applied the two-part eligibility test set forth in Mayo Collaborative Services v. Prometheus Labs, 132 S.Ct. 1289 (2014), i.e., is the claim directed to ineligible subject matter and, if so, is there an inventive concept in the claim that amounts to something significantly more than the mere ineligible subject matter? In Alice, the answer was no on both counts. GT attorneys James DeCarlo, Nicholas Martin, and James Ryerson discuss this and other recent decisions as well as strategies patent litigators and prosecutors should consider in dealing with eligibility challenges in their recent article “Patent Eligibility After ‘Alice.’

USPTO Issues Subject Matter Eligibility Update with Examples for Life Sciences

Posted in GT Alert, Patent, Patent Strategy, USPTO

Following the recent Supreme Court decisions in Alice Corp., Myriad, and Mayo which invalidated an array of claims under 35 U.S.C. § 101, patent subject matter eligibility has become a closely watched and debated issue. In its most recent attempt to decipher these decisions and apply them in patent examination, on May 4, 2016, the U.S. Patent and Trademark Office (“USPTO”) issued a Subject Matter Eligibility Update (“May 2016 Update”) May 4, 2016. The May 2016 Update provides a memorandum to the Patent Examining Corps on best practices in formulating a subject matter eligibility rejection and evaluating the applicant’s response, along with additional subject matter eligibility examples in the life sciences area.

The Memorandum

In formulating a § 101 rejection, examiners should, according to the memorandum:

(1) identify the judicial exception (i.e., abstract idea, law of nature, or natural product) by referring to what is recited (i.e., set forth or described) in the claim and explain why it is considered an exception;

(2) identify any additional elements (specifically point to claim features/limitations/steps) recited in the claim beyond the identified judicial exception; and

(3) explain the reason(s) that the additional elements taken individually, and also taken as a combination, do not result in the claim as a whole amounting to significantly more than the judicial exception.

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Food for thought: Florida, Israel can lead the way in agtech

Posted in Agricultural Technology

By 2050, the global population is expected to increase to 9 billion people — a dramatic increase of more than 35 percent. Given scarce natural resources and the uncertainties of climate change, feeding that growing population means food production will need to increase by 70 percent, according to the Food and Agriculture Organization.

Florida, where agriculture ranks as the second-largest industry, is perfectly positioned to take the lead in combating world hunger through investments in agricultural research. One strategy for doing so involves attracting innovative agricultural technology companies to the market. There is no better ally to enlist in such an effort than the state of Israel, which is known for its innovation in this area. Many of these Israeli food and agricultural technology companies are actively seeking opportunities for U.S. expansion.

Israel has been investing in food and agriculture innovation since its inception 68 years ago. The result: the country is a leader in this area, despite the fact that the geography of Israel is not naturally conducive to agriculture. Israel’s climate, geography and lack of water resources, provide many parallels that would be relevant to Florida. Those success stories include leading Israeli Agtech companies like Kaiima, a genetics and breeding company that utilizes technology to enhance crop productivity. The work of Netafim, a leader in smart drip and micro irrigation solutions, helps to reduce water usage and increase yields. And, Afimilk provides technology that helps dairy farmers increase yields and profitability.

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