MT207 Unit 8 Funding Proposal Example

Twenty Thousand From a Microlender, Not Thirty Percent to an Uncle: A Unit 8 Funding Proposal

[Student Name]

Purdue University Global

MT207: Starting a Business

Unit 8 Funding Proposal

[Instructor Name]

[Date]

Clearline Vent Care, the microlender, the founder's family and every figure are composite and illustrative; bracketed figures stand where lender terms and projections would supply the numbers; the sources cited are real.

Request

Clearline Vent Care, a single-member LLC owned by Tanya Brooks, requests a [$20,000] microloan for a term of five years at the lender's posted rate of about [8.5] percent, with monthly payments of about [$410]. The loan will fund equipment, certification, insurance down payments, launch marketing and part of the operating reserve. The owner is contributing [$16,000] of her own savings, about a third of the total.

Sources and Uses

The uses come from the Unit 7 worksheet. One-time costs total about [$35,010], including a [$21,500] used van, [$3,400] for the brush and vacuum system, [$1,150] for ladders and fall protection, and the certification course. The operating reserve of [$15,000] covers the gap between fixed costs and contribution through month eight. Total uses come to about [$50,000].

The sources are three. The owner's savings of [$16,000] cover the [$7,500] down payment on the van and [$8,500] of the reserve. Dealer financing of [$14,000] on the van runs four years at about [7.9] percent, a payment of about [$341] a month, secured by the van. The requested microloan of [$20,000] covers the remaining equipment, the start-up items and the rest of the reserve.

The federal microloan program (U.S. Small Business Administration, 2024) is described as lending up to $50,000 through nonprofit intermediaries, often paired with business training, for small businesses that may not qualify for a bank loan. The founder's lack of business history makes a bank loan unlikely, and the training requirement fits the gaps the Unit 5 study identified.

The Offer Not Taken

The founder's uncle offered [$20,000] in exchange for 30 percent of the company. That offer implies a post-money value of about [$66,700] for a business that does not yet exist, and it would give the uncle 30 percent of every future year's profit. If profit after the owner's draw reaches [$45,000] in year three, as the Unit 10 projection suggests, the uncle's share that year alone would be [$13,500].

The microloan, by contrast, costs about [$4,620] in total interest over five years and ends when it is repaid. It also leaves the founder in sole control of decisions such as pricing, hiring and whether to expand to a second van. Robb and Robinson (2014) tracked thousands of firms founded in 2004 and reported that formal debt, such as bank loans and business credit, outweighed money from outside investors in the first years, and that owner equity and personal debt formed a large part of early financing. This proposal follows that common pattern for the same reason most founders do: debt is cheaper when the business is likely to succeed.

The uncle's money would cost less in year one and far more in every year after.

Repayment Capacity

Annual debt service on the microloan and the van totals about [$9,020]. The year-two projection shows cash available for debt service, after the owner's draw of [$31,200], of about [$15,500], for a debt service coverage ratio of about [1.7]. In year one the coverage is thinner, about [1.1], because the business ramps through month eight; the operating reserve is sized to cover that period.

The projection depends mainly on apartment contracts. Three communities with [600] units have signed letters of intent, which the Unit 5 study set as the condition for proceeding. Those letters alone would produce about [$22,200] in annual contribution, more than twice the annual debt service.

The letters matter for timing as well as size. Two of the communities want their first buildings cleaned in the spring, before residents run air conditioning and open windows, which brings contract revenue into months three and four rather than waiting for the November budget cycle. That schedule is already reflected in the reserve.

Collateral and Guarantee

The van secures the dealer loan. The microloan would be secured by the cleaning equipment, worth about [$5,400] new, and by the founder's personal guarantee. The founder understands that the guarantee reaches her personal assets despite the LLC, which she discussed in Unit 1 as the risk she weighed most heavily.

Risks

Three risks matter most. A slower ramp than planned would strain year-one cash; the reserve covers about one extra slow month. A liability claim from a fire after a cleaning would be serious; general liability with completed-operations coverage is in place from day one. And the founder's own health is a single point of failure in a one-person business; she is arranging a backup with a certified technician at a chimney company who has agreed to cover emergencies at a set rate.

Scarborough and Cornwall (2019) advise that a funding request show lenders how the owner will repay under less favorable conditions, not only under the plan. If homeowner revenue came in at half the projection, year-two coverage would fall to about [1.3], still above the lender's minimum of [1.2].

References

Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. Review of Financial Studies, 27(1), 153-179. https://doi.org/10.1093/rfs/hhs072

Scarborough, N. M., & Cornwall, J. R. (2019). Essentials of entrepreneurship and small business management (9th ed.). Pearson.

U.S. Small Business Administration. (2024). Microloans. https://www.sba.gov/funding-programs/loans/microloans