Replies to post #16559 on iPackets International Inc. (IPKL)

[usmgolffan]

TD2A,
You have posed a valid question. Here is my answer...
Debt financing is a strategy that involves borrowing money from a lender or investor with the understanding that the full amount will be repaid in the future, usually with interest. In contrast, equity financing—in which investors receive partial ownership in the company in exchange for their funds—does not have to be repaid. In most cases, debt financing does not include any provision for ownership of the company (although some types of debt are convertible to stock). Instead, small businesses that employ debt financing accept a direct obligation to repay the funds within a certain period of time. The interest rate charged on the borrowed funds reflects the level of risk that the lender undertakes by providing the money. For example, a lender might charge a startup company a higher interest rate than it would a company that had shown a profit for several years. Since lenders are paid off before owners in the event of business liquidation, debt financing entails less risk than equity financing and thus usually commands a lower return.

Though there are several possible methods of debt financing available to small businesses—including private placement of bonds, convertible debentures, industrial development bonds, and leveraged buyouts—by far the most common type of debt financing is a regular loan. Loans can be classified as long-term (with a maturity longer than one year), short-term (with a maturity shorter than two years), or a credit line (for more immediate borrowing needs). They can be endorsed by co-signers, guaranteed by the government, or secured by collateral—such as real estate, accounts receivable, inventory, savings, life insurance, stocks and bonds, or the item purchased with the loan.

Since IPackets does not have long-term credit history associated with revenues and intake, the short-term loan process will be painful and very expensive. "Points" will be added to their short term liabilities and debt ratios. It is better (at least financially, even if the stockholders find it painful) to continue diluting for the six-month short term than to take on short-term debt and default on the that debt for the above paragraphsed reasons.