One of the first basic capital decisions a business owner must make is to offer debt or equity participation to their investors.
When offering equity participation the investors are becoming part owners in the business. This means they are willing to let the profitability of their investment be tied to the good and bad fortunes of the business. In this case of equity participation, when the business does well the investors reap a higher reward. During periods when the business does not fare so well the investors will receive less and in some cases no profits or distributions at all.
On the other hand, when an entity is offering debt investors are actually lending funds to the business. This means no matter how well the business may or may not be doing at any given time there will most likely be some sort of required periodic payment that the business will have to pay the investors. If these payments are not made the business will run the risk of being in default or insolvent. Default and insolvency are conditions that always must be greatly avoided by any business.
For this reason it is very important the terms of repayment specified in the offering documents are laid out in such a way not to put the business in an unfavorable financial position. When putting together a debt offering items such as interest rate, time for repayment, the actual loan amount, the periodic re-payment amount, and remedies of default among other things must be spelled out in great detail.
After the debt offering is complete and the business is in operation the terms of repayment must be adhered to. At the same time the business must be able to clear a profit as well. A formal Debt Service Coverage Assessment needs to be performed in order to gauge the feasibility of various repayment terms. This assessment takes into consideration a multitude of factors that ultimately determine the likelihood of the entity achieving certain levels of profitability. The terms of repayment as specified in the debt offering can greatly affect the profitability and survivability of the business.
Negotiating terms of repayment that will not put the business under undue financial stress is very important. If the entity ultimately makes the payments as specified but fails to clear a profit this can be a disaster. A formal Debt Service Coverage Assessment will serve as a road map outlining terms that the business owner can use to negotiate a feasible arrangement for the entity to operate under.
For those business owners who wish to make use of our Debt Service Coverage Assessment the first step would be to complete the questionnaire after clicking “Client Intake Request”
Once the questionnaire is completely filled out our staff can make a complete assessment. Afterwards we can provide the business owner a detailed breakdown of the cost and time that will be required to fully prepare a Debt Service Coverage Assessment. This report will out line among other things an ideal set of repayment terms to be sought after during any negotiations with investors. Our company bills $225.00 per hour for Debt Service Coverage Assessment reports..
It usually takes our staff 3 to 4 business days to prepare a time and cost proposal for Debt Assessment reports. Clients should allow this time for us to prepare a proposal for services.