Debt Financing

1.0 You invent a medical device that has the potential of wide use, and you assign your intellectual property rights to a newly-formed corporation in which you begin as the sole owner. The corporation will pursue patenting of the invention with hopes that the medical device will be commercially distributed. You believe that it will take $120,000 to complete the patent process, obtain Food and Drug Administration (FDA) clearance, and determine whether the medical device is commercially viable. You have raised $90,000, so you are $30,000 short of your capital raise goal.

1.1 Is debt financing a viable option at this stage for a new business? If so, why, and what kind of debt instrument? If not, why not?

1.2 Assuming that the corporation qualifies for some form of debt financing, what kind of security will a lender be likely to require?

2.0 The business has matured, and the corporation is now engaged in manufacturing, hiring sales personnel, maintaining inventory to meet orders, and hiring administrative employees to process the orders, so your working capital needs have substantially changed because you will need to manage a payroll process and incur more administrative overhead.However, there are periods when revenue is not sufficient to cover current cash obligations.

2.1 Is debt financing a viable option at this stage for a new business? If so, why, and what kind of debt instrument? If not, why not?

2.2 Assuming that the corporation qualifies for some form of debt financing, what kind of security will a lender be likely to require?