New York Empire State Development $50 million Loan Program Accepting Applications Until Sept. 30th

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New York State’s Empire State Development  is accepting applications for its $50 million small business revolving loan fund until September 30th.  The fund was conceived and approved to create economic activity by providing greater access to capital for small businesses.

Small retail, service and manufacturing businesses across New York State are eligible to apply.    The intention is for loan proceeds to lead to the creation and retention of jobs.  An overview of the revolving loan program,  a copy of the RFP form and contacts for further information are all now posted on the Empire State Development website.

Introductory Finance for Business

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I am scheduled to teach Introductory Finance for Business at The New School 4pm Mondays, starting 8/30/10. The course provides an understanding of financial statements and concepts for students with no prior knowledge of the subject and is enlivened by excerpts from TV and Movies that deal with business finance. We need just a few more students for the course to be a “go”.   (9/27 update:  We got the needed students, and just had our fourth class this evening)

For more details, please click here, and then click on “business and management”, and then click on course NMGT 2133. Please help me pass the word, the course is open to the general public, thanks!

Here are five questions from a practice exam I gave to my students in a prior year; how many of these can you solve?

1. If a company with $3 million annual revenue decreases its accounts receivables from 45 days outstanding to 30 days outstanding how much cash is freed up?

2. An investor buys a 30-year, 10% interest bond, for $100,000. If interest rates increase to 20%, the value of this bond would change to:
a. $50,211
b. $91,667
c. $104,762
d. $176,862

3. Which of the following statements distinguishing debt versus equity is true?

a. Debt is an ownership interest, while equity is not
b. A publicly-owned firm’s equity has a fluctuating market price, not its debt
c. An all-debt firm is more likely to go bankrupt than an all-equity firm
d. Companies must have some debt in place before they can sell equity

4. A firm has operating income of $50 million, interest expense of $18 million, dividends paid of $15 million, and a 40% tax rate, what is net income?
a. $10.2 million
b. $12.8 million
c. $19.2 million
d. $21.0 million

5. A premium bond has a coupon rate that:
a. is less than the yield to maturity.
b. equals zero.
c. must be variable.
d. equals the current yield.
e. exceeds the yield to maturity

ANSWERS: 1. $123,288, 2A, 3C, 4C, 5E

Why Businesses Go Bankrupt: Tribune Company

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When Sam Zell completed an $8.2 billion acquisition of the Tribune Company in December 2007 with an equity investment of only $315 million, he was described alternately as “reckless” and a “genius” by the financial press.  Zell’s main strategy was to sell assets and deleverage his position, but plans to sell the Food Network fell through, while plans to sell Wrigley Field and the Chicago Cubs were delayed, and Zell took the Tribune Company (excluding the baseball franchise) into bankruptcy in December of 2008, less than a year after the acquisition closed.

The “Wall Street Journal” reported on 8/3/10 that Houlihan Lokey, a Los Angeles based investment bank, rejected the Tribune Company’s 2007 request for a “solvency opinion” that would have described Zell’s proposed takeover as financially sound. According to WSJ sources, Houlihan Lokey was concerned about the Tribune’s health in particular, and the fortunes of the newspaper industry in general, and felt the deal was “DOA.”  After being snubbed by Houlihan Lokey, the Tribune turned to a smaller firm, Valuation Research, to get the fairness opinion it sought.  A bankruptcy court examiner, Kenneth Klee, recently criticized Valuation Research, saying it “used faulty methods to reach its conclusions.”

On 7/27/10, the Chicago Sun-Times reported that Klee, a Los Angeles attorney and law professor,  had found that Tribune managers did not act forthrightly in procuring the solvency opinion issued by Valuation Research” and that “one of more of Tribune’s officers breached their fiduciary duties.”

Looking at Tribune Company’s 10-Q reports before and after the deal shows that on 3/31/07, they had $3.6 billion of long term debt, and $4.3 billion of shareholders’ equity and on 3/31/08, one year later, long term debt had nearly tripled to $11.6 billion and there was a shareholders’ deficit of ($1.7 billion). It will be fascinating to see  Klee’s detailed comments about the judgment of Tribune’s officers when his 1,000 page report is fully released to the general public.  I’ll also be interested to see if he comments on the judgment of Tribune’s principal lenders: JP Morgan Chase, Bank of America and Citigroup.

Obama Visits Tastee Sub Shop to Talk up his Small Biz Agenda

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As a way to promote his small business agenda, President Obama visited the Tastee Sub Shop in Edison, New Jersey on July 28th, ordered half a #5 Super Sub to go, and talked business with Sub Shop co-owner Dave Thornton; Brian Bovio, owner of a family energy business; Rochelle Park restaurant owner Theo Mastorakos; and Tom and Catherine Horsburgh, owners of Ridgid Paper Tube Corporation in Wayne. President Obama is campaigning for passage of legislation that would provide $30 billion to community banks, allowing them to lend money to small businesses.  The independently owned Tastee Sub Shop was founded in 1963,  and is presumably well financed. But according to the International Franchise Association, the franchise industry is expected to seek $10.1 billion in capital, while banks are expected to lend only $6.7 billion, leaving franchisers such as Marco’s Pizza to fill the financing gap, if they want to expand in an environment of tight bank credit.

NY State Creates $50 Million Loan Fund to Aid Small Businesses

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New York State has put up $25 million, which when matched by private lending institutions, will create a $50 million loan fund intended to aid NY State small businesses blocked from access to traditional sources of credit, the 7/19/10 “Westchester County Business Journal” reported.  Successful applicants may use the funding for “working capital, acquisition and or improvement of real property, the acquisition of machinery and equipment, property improvement, or the refinancing of debt obligations.”  Business owners seeking more information on the program are encouraged to contact their regional Empire State Development office.

(8/26/10 update:  The “Brooklyn Daily Eagle” reported that the Empire State Development Corp. awarded Brooklyn Brewery an $800,000 “restore New York” grant, which will help the brewer expand their Williamsburg operations, by purchasing and installing new equipment.)