AN EXAMPLE OF A SKIPPED-PAYMENT LOAN
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              In  the  cash-starved  business  climate  of the 90s, an 
         especially  useful financing strategy for small businesses is 
         the  Skipped-Payment  Loan (SPL), but most firms aren't aware 
         of  SPLs.   As  a  method  of controlling cash flow, SPLs are 
         very  effective  and  can  even make the difference between a 
         viable   or   a   marginal   operation.   SPLs  can  be  used 
         advantageously  by  any business in any stage of development, 
         but  small businesses tend to benefit more because their cash 
         flow   is   frequently   more   critical   than   in   larger 
         organizations.
         
              The  essence  of  an SPL is a loan payback schedule that 
         includes  skipped  payments  which  are  prenegotiated by the 
         borrower  and  lender,  usually to reduce anticipated strains 
         on  cash  flow.   The  kinds  of  businesses  that  find SPLs 
         attractive   are   often   seasonal   in   nature   (tourism, 
         construction,  or retailing, for example).  But any business, 
         even  individuals, can use SPLs.  A simple hypothetical shows 
         how an SPL works.
         
              Eclipse  Sunglasses  is a small business about to borrow 
         capital  for expansion.  The company's revenues are seasonal, 
         with  most of its sales between May-August (beach season) and 
         November-December  (skiing).   Eclipse  plans  an  aggressive 
         entry  into  the  worldwide market which, if successful, will 
         level  cash  flow  by  reducing  seasonality.  But during the 
         overseas  advertising  campaign,  and  before  foreign  sales 
         begin  ramping  up, the firm expects an even worse than usual 
         cash flow crunch.
         
              Eclipse  determines  that  a  3-year, $50,000 commercial 
         note  at  9%  starting  in  July  '92 will provide the needed 
         capital.   To  level the company's expected cash flow profile 
         during  the  next  3  years,  the  bank  has  agreed  to  the 
         following skipped payments (in order of occurrence): 
         
              Jul(1st payment), Sep, Oct, Feb, Mar, Apr;
                                Sep, Jan, Feb, Apr;
                                Oct, Mar.
         
              With  this  payback  schedule,  Eclipse  makes  only  24 
         payments  of  $2422.83  during the 36 month term of the note. 
         Without  skipped  payments,  36 payments of $1589.99 would be 
         made.   Using  the  SPL, the company pays an additional 12.5% 
         in  interest  ($908),  an unavoidable consequence of skipping 
         payments.   But  this  cost over 3 years is relatively small, 
         especially   if  it  helps  Eclipse  cash  flow  problem.  If 
         revenues  happen  exceed  projections  so that excess cash is 
         available,  then the SPL can be accelerated (prepaid) to save 
         interest.   This  simple  case  illustrates how useful an SPL 
         can  be  in  dealing  with  cash flow variability, and why it 
         should  be  considered  as  a  financing  tool  by  any small 
         company needing to borrow money.