Economic Development Finance Flashcards
almost every aspect of implementing economic development projects or programs involves securing ____
financing
business have different financing needs based on what ____
stage of the business cycle they’re in
working capital focuses on the most _____
liquid assets used in the operation of an entity (cash, marketable securities, accounts receiveable, accounts payable, accruals, short-term loans, inventory, pre-paid expenses, etc.
fixed assets are longer-lived assets like
plants, property, and equipment
working capital is often used to meet short term debt obligations or debt due within
the next twelve months
because working capital generally generates income almost immediately a business will typically use ______ financing to finance temporary increases in working capital
short term financing
what are some examples of short term financing
short term bank loan, line of credit or trade credit
most fixed asset investments are used to
expand or improve production capacity or efficiency or replace equipment
fixed assets are normally financed with _____ because of how costly they are. They also don’t result in an immediate increase in sales sufficient to cover their costs
long-term loans (longer than 12 months)
financing needs of most new businesses come in the form of _____
equity
Does equity require immediate repayment?
No.
equity fiancing provides a ______ on which debt can be leveraged
capital base
trade credit is credit extended by an ____ It is often unavailable to new firms because there is not a strong relationship yet
entity’s suppliers
For a VC to invest in a start-up, the expected retunr has to be___
high enough to offset the greater risk incurred
Private sector commercial lenders don’t like to finance start-ups without some kind of ______ like those offered by the SBA
loan guarantee
the conditions of private lenders on start-ups is often ___ for start-ups
too expensive
banks negatively view high ______ as it increases the chances that the business will have difficulty meeting its regular debt payments
debt/equity
small businesses face a ___ in private financing when trying to obtain long-term financing of fixed assets
gap
many commercial banks don’t provide loans smaller than $___
100,000
microloans are typically $____ or less
$25,000
commercial banks are typically short to medium-term lenders which means
they don’t prefer to lend for periods of more than 10 years, often not more than 7; longer terms have prohibitive principal and interest
insurance companies are long-term lenders but tend to limit their investments to projects over ____ in value
$1million
firms with cyclical demand need extra cash to _____ when _____
finance the buildup of inventory in anticipation of future sales; actual sales are low
for cyclical or seasonal demand, larger firms often have a ______
bank line of credit
interest rates and conditions on line of credit are
prohibitive
many banks won’t offer lines of credit that are less than ____
$1 million
small, minority, and or new contractors often don’t have the ______ to pay up front for expenses required to undertake a contract and finance the costs until full payment is received for services
line of credit
sharp sustained increases in sales create the need to _______ and create the need for short-term and _____ capital
ramp up production quickly; long term
many firms encounter problems with getting export financing because
banks are unfamiliar with international banking transactions, there is a perception of risk, there is potential for exchange rate losses during currency conversion, political instability in foreign markets
mature firms typically need lines of credit for___
replacing equipment or improving production
some of the challenges that mature firms might have around financing occur because
sales are declining but expenses are not
heavy investment in fixed assets make it hard to cut costs
facilities may be hard to sell because of their location or they have become obsolete
private sector financial institutions provide two forms of financial capital:
debt and equity
debt capital is capital that needs to be paid back on afixed schedule and can include
loans, bonds,
loans are
the transfer of capital between a borrower and a single lender
bonds are
sold to many investors
the most common type of debt is a
loan
in return for a lender’s investment, ____ is charged
interest
interst charges are typically due within the following timeframes
the debt period
at the end of the debt period
in advance of the principal
list some debt sources
banks, mortgage companies, credit unions, pension funds, industrial revenue bonds, savings and loans
___, ____, and ____ are the most familiar sources of debt capital. they rely primarily on a businesses ability to pay and only secondarily on _____ offered as collateral
banks, credit unions, and savings and loan institutions; assets offered as collateral
in return for equity investment, investors receive ______ in the venture
partial ownership
equity investments are primarily in the form of ____, however any capital that an owner invests is considered equity
stocks
private sources of equity include
friends, associates, and relatives venture capitalists angel investors public or private sale of common or preferred stock private or corporate investors
public sector funding solutions are meant to ______ to ensure that access to capital is extended to entities that are credit-worthy but not considered good risks in traditional commercial terms
leverage private lenders and investors
the role of the public sector is to invest in ventures or projects where
the economic and social benefits outweigh the risk of financing
public lending assistance should not
offer services to clients that have access to and qualify for conventional financing in amounts adequate for their need
typical public sector financing goals and programs include
- lowering the cost of borrowing
- lowering risk
- provid investment programs
- package loans
- direct lending and financing
- offer technical assistance
