Monday, March 3, 2008

Short-term Project Financing: Case Study

This question (paraphrased) was submitted by one of my readers:

"Hi Scott - I have been reading some of your financial blogs. I have a question for you, yes is a needle in a haystack... I am looking for capital - short term - to announce a local sporting event with internationally-recognized sports figures. My original funding source was delayed out of by 30 days and I need some immediate cash for expenses related to the event. Do any of your contacts have access to immediate funds with ticket sales as collateral?"

Funding of this sort doesn't fall into the normal "venture capital" funding out there, but I see a couple of potential options for you:

1. Talk with your event partners, such as the arena hosting the event about providing a short-term loan in exhange for a return on ticket sales. In the arena is booked, they might find it difficult to re-book their location with another event, and thus both of you would be losing money if the event does not happen. Take a partnership approach.

2. Approach your local vendors that stand to lose planned revenues if the event is postponed - same principle applies as with the arena hosting the event. Agin, take a partnership approach and leverage the fact that you're bringing this event to your city - they'll be buying into you and your ability to make the event happen.

3. Talk with a leading local bank about some derivative of Accounts Receivable Financing (sometimes called "factoring"). This type of financing is normally reserved for firms that have revenues booked as Accounts Receivables, but have not yet collected. Because the terms extended to customers may include net-30, net-45, net-60, net-90, etc., some lenders provide financing based on these future revenues, with some risk premium charged to you in exchange. While this doesn't match your situation exactly, a local lender or credit union may be willing to provide a loan in exchange for the aforementioned risk premium and some hefty sponsorship recognition from your organization at the event.

A search in Google for "accounts receivable financing" yields thousands of results where you can learn more.

Because of the short-term nature of your capital requirements, you'll need to approach private banking institutions and lenders, and avoid SBA (Small Business Association) loans. SBA loans take months to get cleared and its likely that your situation doesn't fit their lending criteria.

I'm suggesting a local bank because they may have more autonomy to make a quick decision locally, instead of the probable "up-the-ladder" decision process with a large regional or national ban. Plus, the local banker will have more implicit interest in receiving sponsorship status in exchange for providing an event loan.

4. Meet with the local Chamber of Commerce to discuss business contacts of private business leaders that can help you out of your situation. From what I know about your city, there are bound to be a couple local business leaders that might be willing to take a risk in working with your event. They may have some lenders in mind for your as well.

5. Contact your previous sponsors and VIP ticketholders and offer a significant pre-pay discount for sponsorships and tickets if you've had this event in the past. This would provide you with some quick cash flow for promoting the event.

In short, I'd consider any and all options if you're in that much of a bind. Take the win-win approach that everyone that gets involved with the event and leverage your existing work with previous events and your foundation. Hope this helps.

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