BF-M4 Flashcards
is essentially the act of raising capital by borrowing money from a lender or a bank, to be repaid at a future date.
Debt Financing
is the process of raising capital through the sale of shares.
Equity Financing
Sources and Uses of Short-term Funds:
refers to the extension of payment due date by suppliers.
Suppliers Credit
Sources and Uses of Short-term Funds:
personal funds advanced by a stockholder to a company that usually requires interest. These usually require little to no interest on advances, especially if the owner is advancing funds to assist the company in sudden liquidity crisis. This source, however, is depended on the availability of funds of an individual.
Advances from stockholders or other owners
Sources and Uses of Short-term Funds:
provided lending services to its members. Members usually pay contributions to the cooperative.
Credit cooperatives
Sources and Uses of Short-term Funds:
provides several loan products catering to different types of needs.
Banks
Sources and Uses of Short-term Funds:
just take note of the high interest rates on this source of funds.
Credit Cards
Sources and Uses of Short-term Funds:
companies that are dedicated to lending. They usually charge higher interest than banks, but their credit requirements are more lenient compared to banks.
Lending Companies
Sources and Uses of Short-term Funds:
provides funds in exchange for collateral, usually jewelry, or other items of value.
Pawnshops
Sources and Uses of Short-term Funds:
Interest is usually paid per month, and monthly interest is 20%.
Informal lending sources (5/6)
Factors Considered in Selecting the Source of Short-term Financing:
informal lending sources like 5/6 may be the most expensive.
Cost (Interest)
Factors Considered in Selecting the Source of Short-term Financing:
informal lending sources like 5/6 is most available because there are no formal requirements to avail of the facility.
Availability of short-term funds
Factors Considered in Selecting the Source of Short-term Financing:
whatever the source of fund is, if the company defaults, the lenders may foreclose some of the company’s properties or even the entire business itself to settle the loan.
Risk
Factors Considered in Selecting the Source of Short-term Financing:
this pertains to the ability of the company to access funds. For example, a bank loan may be cheaper, but the bank may reject the loan application of the borrower because he/she did not pass the credit evaluation process of the bank.
Flexibility
Factors Considered in Selecting the Source of Short-term Financing:
some lenders like banks may require a minimum deposit balance with their branch for as long as the loans remain outstanding. The bank’s approval may also be secured before cash dividends can be declared
Restrictions (Debt covenants)
Sources and Uses of Long-Term Funds:
In investing terms, ____purchase stock for a share of ownership in companies with the expectation that the stock may earn dividends or can be resold with a capital gain. If the investment were to rise in value, the equity they could get for selling it potentially increases.
equity investors
Sources and Uses of Long-Term Funds:
not all profits are distributed to stockholders. Most of the profits are re-invested and used by companies to finance their needs.
Internally generated funds
Sources and Uses of Long-Term Funds:
they provide long-term loans, depending on the nature of the need. For example, a 5-year to 10-year loan may be granted if the purpose of the loan is construction of an office building.
Banks
Sources and Uses of Long-Term Funds:
these are debt investments where an investor loans money to an entity which borrows the funds.
Bonds
Sources and Uses of Long-Term Funds:
they can also provide long-term loans.
Lending companies
5C’s of Credit:
the willingness of the borrower to repay the loan
Character
5C’s of Credit:
a customer’s ability to generate cash flows
Capacity
5C’s of Credit:
security pledged for payment of the loan
Collateral
5C’s of Credit:
a customer’s financial resources
Capital
