Sources and Uses of Short-Term and Long-Term Funds Flashcards
Is the process of providing funds for business activities, making purchases, or investing.
Financing
2 types of Financing
- Debt Financing
- Equity Financing
- is being done through borrowing, whether short or long-term, and it usually comes with an interest.
Debt Financing
It involves money borrowed from external lenders, such as a bank or lending company.
Debt Financing
- refers to the sale of ownership interest, most often represented by shares, to raise fund for business purposes.
Equity Financing
- investing your own money, or funds from other investor, in exchange of partial ownership. Example: Selling of percentage of the properties.
Equity Financing
Short-term financing because you can borrow at the financial institution
DEBT FINANCING
Only to pay is the interest
DEBT FINANCING
It is risky because if you can’t pay the loan on time, you’ll pay penalty.
DEBT FINANCING
Long-term financing because in selling percentage or shares is too long to process.
EQUITY FINANCING
It is costly because you’ll pay a lot of expenses like taxes and processing fees
EQUITY FINANCING
Stocks are changing.
EQUITY FINANCING
– supervised by Bangko Sentral ng Pilipinas
- it is an establishment for the deposit, custody, and issue of money, for making loans and deposits, and for making the exchange of funds easier.
BANK
– it is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required.
CREDIT COOPERATIVES
an organizations without a bank charter that advances funds to businesses by discounting notes receivable, making loans secured by mortgage, or financing deferred-payment sales of commercial and industrial equipment.
COMMERCIAL FINANCE COMPANIES
Includes name (or business name), birth date, current and previous address, social security number, tin, phone number and other identifying information such as valid government issued id’s.
DEMOGRAPHICS
Current personal income and employer, employment and salary history, and business revenue. If there is an existing business, filed income tax returns is required.
INCOME OR REVENUE
Applicants may be asked to disclose checking, savings, investment accounts and their outstanding loans and credit cards. If with existing business, financial statements and business registration may be required.
ASSETS AND LIABILITIES
Require the identification and contact information of existing employers, previous employers, or even nearest relative not living with the applicant.
CONTACTS AND REFERENCES
require affixing applicant’s signature on the credit application stating that everything on the application is true and correct and authorizing the lender to verify the information provided with the identified contacts and references.
Attest and authorization
LOAN APPLICATION REQUIREMENTS
- Demographics
- Income or Revenue
- Assets and Liabilities
- Contacts or References
- Attest and Authorization
Most important C’s
Character and Capacity
THE 5 C’s OF CREDIT
- Capital
- Capacity
- Character
- Collateral
- Conditions
Your financial ability to pay the lender back
Capacity
your own money you are investing in your business, often a down payment
Capital
an asset you pledge to back the load
Collateral
market analysis of the trends of your industry
Conditions
credit behavior based on indicators like your credit report and score and payment history
Character
Loan Application Process
- Receipt of application form and required documents
- Verification of Information
- Checking of Credit History
- Writing credit report with appropriate recommendation
- Documenting final decision
Responsibilities of Entrepreneurs
to Creditors
Ensure that he or she makes loan payments on time.
If in case the borrower failed to make loan payments on time.
- Contact the creditor immediately
- Do not wait until the due date has passed
- Ask for a grace period
- Renegotiate his or her loan terms
may be used for debt repayment, working capital, capital expenditures, acquisitions, expansion, research and development.
DEBT FINANCING
business growth, research and development, acquisitions, marketing and advertising, hiring and training employees, capital expenditures, improving infrastructure, produtct development, etc.
EQUITY FINANCING
