and the additions made to the power plant and mill. The new shaft is down 635 feet and it is estimated that the cost of finishing and timbering it to the 1,000 foot level and making the necessary crosscuts to the ore bodies at the 800 and 1,000-foot levels will be approximately $50,000. Also, it has been necessary to borrow $37,237.50 during the last two months to carry on the work at the mine and pay the interest due June 1st last on the bonded indebtedness; and the company's indebtedness for accounts payable is approximately $22,000.

A syndicate, composed of part of the officers of the company and other interests, underwrote and took $150,000 worth of the first issue of bonds. . . .

On May 13th last there was sent to each stockholder of the company a circular letter setting forth the ore estimates of the mines, based on reports of two mining engineers, the operating plan, proposed method of financing for future development of the mine, and notifying each stockholder of record of the issuance of an additional $150,000 worth of ten-year 7 per cent convertible bonds of the company for the purpose of continuing the development of the mine and driving of the new shaft.

The bonds of the company were offered to the stockholders at an attractive price and upon liberal terms. Only one subscription of $97.00 was received and the management of the company is now perturbed at the failure of the stockholders to subscribe for the additional issue of bonds.

Work has been temporarily discontinued on the property, except that necessary to keep the water down. The borrowing capacity of the company has been reached and it is imperative that the stockholders immediately subscribe for their quota of bonds so that the management will have the necessary funds with which to finish the work outlined herein.

The editor of the financial publication in which this letter appeared tersely comments: "No more unfavorable factor can enter into any situation than that of inadequate funds, especially where the company is not a going concern."

Providing for Adequate Capital

To avoid the shoals of financial embarrassment with the resulting necessity of seeking financial aid on ruinous terms, suf

ficient capital should be provided at the time an enterprise is launched, to carry it safely through to the self-supporting stage. If as much capital as is deemed necessary cannot be obtained at the time in cash or subscriptions, the launching of the enterprise should be deferred until the required amount can be secured, or its development should be so modified that the amount in hand will suffice for its requirements.

Frequently the need of additional funds in the future is foreseen and provided for at the time the enterprise is floated. Perhaps subscriptions to stock are taken payable in instalments, so that a continuing supply of new capital is coming in for a year or two after organization. Or perhaps preferred stock or bonds will be authorized but not be issued until the additional funds are needed. In the first case if the subscriptions are "firm," the requisite funds are assured. In the second case, if the condition of the enterprise is up to expectation, the prospect of selling the new securities should be favorable. There is no idea of failure, for the sale of the new securities is pursuant to and part of the organization plans.

Secondary Financing-Cost

When an enterprise does fall into financial embarrassment before it has reached the point of self-support, it is, as intimated, apt to fare badly. An appeal may be made to the parties who have invested before—perhaps on the basis that self-interest will make them come to the rescue of the derelict. Hard luck stories, however, are not good money-getters, and if it can be done it is better to "resell" the early investors, i.e., so convince them of the very great value of the enterprise that they will gladly put in more money to bring it to a triumphant conclusion. If those already interested decline to throw good money after bad, some business man may perhaps be found who, by reason of his knowledge of the particular business, or by means of an attractive offer, can be induced to invest the amount required. Or per

haps a small syndicate can be organized to furnish the requisite money.

As already stated, any such secondary financing is always a matter of the greatest difficulty, and if it is carried through, the "carrying" individual or syndicate usually demands, and perforce receives, payment that would under any other circumstances be out of all proportion to the service rendered. The enterprise is looked upon as fair game, and a controlling interest, or an even larger interest-depending upon the necessities of the stranded undertaking-is not considered unreasonable. When money must be had, the cost will usually be proportioned to the urgency of the needs.

Providing Capital for Expansion

The position of the enterprise which, while it has reached the point of self-support and moderate profits, requires more capital before further progress can be made, is not exactly favorable, but is still far superior to that of the stranded enterprise. Such a business is beyond the "dead-line"; it has life and attractive possibilities. It is neither a suppliant nor a forlorn hope. The risks of investment are small, the prospects of profit good, and the raising of additional capital by the ordinary methods should not be a difficult financing problem.

It is not unusual for the newer enterprises to reach this condition of non-elastic self-support. Some years ago a company was formed in New York City for the express purpose of financing enterprises which had struggled along until the point of self-support was reached but were unable to get further without additional capital. Its terms were interesting. The enterprise to be financed must, of course, be basically sound and in fairly competent hands. Given this the financing company would advance funds sufficient to enable the struggling enterprise to realize the possibilities that lay before it. For this help the financing company required certain supervisory

rights during the time that its funds were in use, and demanded as its compensation:

1. That the money advanced be a lien on the whole enter

prise.

2. That the money advanced be repaid as soon as it could be done without injury to the business.

3. That the financing company, in return for the money advanced, should participate for a term of years in the increased profits of the enterprise-25 per cent being

the usual requirement.

The arrangement, though presenting some legal and operative difficulties, was not unfair and promised success. The company, however, retired from the field, though the same idea is being carried out by individual capitalists and by some of the investment banking houses, with considerable success. In such cases terms vary according to the conditions. Not infrequently, if the situation is difficult, the control of the whole business is temporarily or in some cases permanently-taken over by the parties advancing the money.

Meeting Increased Capital Requirements

When a company has once achieved a real commercial and industrial success and is in profitable operation, any further financing offers no special difficulty. It is then only a matter of proper presentation. There is always a considerable amount of such financing going on, and during the last few years its volume has been very great. This has been due to the enormous increase in prices which marked the period of the Great War and continued for some time thereafter, throwing a heavy capital burden on every large business in the country. Raw material and stock cost at least twice as much as they did before-the money tied up in inventories was at least doubled. If then the same volume of business was to be maintained-if the same stock of materials and goods were to be carried-a greatly increased capital investment

was unavoidable. The result was that almost every large corporation of the country issued preferred stock, notes, or bonds, and these issues, whenever the corporation was deserving of confidence, were readily absorbed.

The same thing occurred on a lesser scale with the smaller concerns and for the most part their increased capital needs were met with fair ease-in many cases from current profits, in other cases by borrowing until surplus accumulated sufficient to meet the capital needs, in other cases by the sale of securities.