Chapter 6

Question 1

Financial Requirements

Answer 1

1. Permanent Capital
2. Working Capital
3. Asset Finance

Question 2

Permanent capital

Answer 2

used to finance the start up costs, or major developments / expansions.
ideally done if the firm can afford it.
Usually by investements

Question 3

Working capital

Answer 3

Short-term finance, to bridge the gap on working expenses.
Usually needed in creditor/debitor type of businessesA

Question 4

Asset Finance

Answer 4

Medium to long-term finance
For the purchase of tangible assets

Question 5

The most important asset to manage

Answer 5

Cash

Question 6

Sources of financing

Answer 6

Internal Sources(Equity Capital)
External Sources(Debt Capital)
Lease Financing
Traditional Methods(Iqub and Edir)
Crowd Funding
Micro-finances

Question 7

Internal Sources - Equity Capital

Answer 7

Owner’s capital or owner’s equity represents the personal investment of the owner(s) in a business

Question 8

Sources of Equity Capital

Answer 8

1. Personal Saving
2. Friends and Relative
3. Partners
4. Public stock / sale
5. Angels
6. VC

Question 9

External Sources - Debt Capital

Answer 9

is the external financing that small business owner has borrowed and must repay with interest.

Question 10

Sources of Debt Capital

Answer 10

1. Commercial banks
2. Micro-finances
3. Trade-credit
4. Suppliers
5. AR financing
6. Credit unions
7. Bonds

Question 11

The five C’s of Bank Lending Decision

Answer 11

Capital - stable capital base
Capacity - able to meet financial obligations
Collateral - security for the loan
Character
Conditions

Question 12

Lease financing

Answer 12

where the owner of an asset gives another person, the right to use that asset against periodical payments

Question 13

Types of Lease

Answer 13

Finance Lease
Operating Lease

Question 14

Finance Lease

Answer 14

the lease where the lessor transfers substantially all the risks and rewards of ownership of assets to the lessee for lease rentals

Question 15

Phases of finance lease

Answer 15

1. Primary period - non-cancellable period and in this period, the lessor recovers his total investment through lease rental.
2. Secondary period(peppercorn rental)

Question 16

Operating Lease

Answer 16

risks and rewards incidental to the ownership of asset are not transferred by the lessor to the lessee.

Question 17

Advantages of Lease financing

Answer 17

• assured regular income
• preservation of ownership
• benefit of tax
• high profits
• recovery of investment

Question 18

Limitations of Lease financing

Answer 18

• unprofitable incase of inflation
• double taxation
• damage of asset

Question 19

Crowd funding

Answer 19

method of raising capital through the collective effort of friends, family, customers, and individual investors or even from the general public

Question 20

Benefits of Crowd Funding

Answer 20

Reach - crowd funding platforms
Presentation - looking at business from a top level
PR & Marketing
Validation of Concept - validate offerings
Efficiency

Question 21

Types of Crowd Funding

Answer 21

Donation based - no financial return to investors or contributors
Rewards based - contributing in exchange for a reward. Typically a product or service
Equity based - contributors become part owners

Question 22

Microfinance

Answer 22

financial services, to entrepreneurs, small businesses and individuals who lack access to banking services with high collateral requirements

Question 23

Pioneer of modern microfinance

Answer 23

Dr. Mohammad Yunus