Debt Financing Flashcards
Leverage
The technique of increasing the rate of return on an investment by financing it with borrowed funds
Magnifies gains AND losses
Debt financing
Arranging funding by borrowing money
Capital structure
A firm’s mix of debt and equity financing
Crowdfunding
Soliciting project funds, business investment, or business loans from members of the public
Short term debt options
Credit cards Trade credit Secured loans Unsecured loans Commercial paper Factoring and receivables options
Trade credit
Credit obtained by a purchaser directly from a supplier
Secured loans
Loans backed up with assets that the lender can claim in case of default, such as a piece of property
Collateral
A tangible asset a lender can claim if a borrower defaults on a loan
Unsecured loans
Loans that require a good credit rating but no collateral
Compensating balance
The portion of an unsecured loan that is kept in deposit at a lending institution to protect the lender and increase the lender’s return
Line of credit
An arrangement in which a financial institution makes money available for use at any time after the loan has been approved
Commercial paper
Short term promissory notes, or contractual agreements, to repay a borrowed amount by a specified time with a specified interest rate
Factoring
Obtaining funding by selling accounts receivable
Long term debt options
Long term loans
Leases
Corporate bonds
The 5 C’s of considering applications for Long term loans
Character-owner’s character & qualifications
Capacity-ability to repay loan
Capital-have enough capital to succeed
Conditions-economy’s health and industry health
Collateral-duh
