LDP 6.3 Using Projections to Help Determine Appropriate Loan Type Flashcards
1
Q
Permanent sources
A
Include:
- Increases in net worth
- increases in liabilities that do not have to be reduced within one year, and
- reductions in assets that do not have to be replenished right away.
2
Q
Permanent borrowing causes
A
Those that tie up funds for a period of several years.
3
Q
Temporary sources
A
Include:
- reduction in assets that will have to be replenished soon (usually within a year) and
- an increase in current liabilities that will have to be reduced within the year.
4
Q
Temporary needs can be met with:
A
1) Seasonal or Revolving Lines of Credit
2) Short-term Loans
5
Q
Long-term needs can be met with:
A
1) Permanent Working Capital Loans
2) Installment, Term, or Mortgage Loans
3) Term Loans to Provide Long-Term Financing for Reductions in a Company’s Net Worth
6
Q
Three key considerations when determining the repayment schedule for a long-term loan.
A
- Useful life of any long-term assets being financed
- Impact of the debt on financial leverage
- Availability of cash flow to service the debt