SBM

• when a company makes a profit
• your customers
• trade credit

• a. partial payments on long-term projects
• b. put an aggressive credit collection policy into effect

credit extended by one business to help another finance distribution and produce goods. trade credit granted by suppliers is the thrid internal source of funding.

intrest-free credit on purchases of goods or services to well-established customers

trade credit

thirty, sixty or even nintey days to pay an invoice

means that you may be able to order, obtain delivery, and sell an item before you have to pay for it

• 1. very low cost
• 2. careful manage, can make external source more available
• 3. low risk
• 4. max flexability
• 5. you retain control

• 1. overly aggressive credit policy alienates customers
• 2. difficulty in converting assets needed to produce income or effective operations in cash

• sole proprietorships
• partnership
• corporations

capital funds inveted by owner(s) invested capital of firm

the only source of equity funds is the owner's pocketbook. other than internal sources of money, the only way the sole proprietor can increase the invested capital in the business is to draw on personal assets.

savings accounts, life insurance policies and collateral loans on personal assets

find it easier than sole proprietorships to raise equity capital. many proprietorship become partners in an effort to raise additional funds.

• 1. ea. of the partners can be tapped for additonal funds
• 2. additional partners and their money can be added to a partnership

ea. partner shares control and profit of business

restricted to contributing capital

• common stock
• preferred stock
• debt financing

represents ownership in the corporation. when a business is incorporated, it is authorized to sell a maximum amount of common shares. once sold it's initial stock offering, it can continue to sell common stock up to the authorized level.

preemptive right, some cost only if the new stockholders demand more dividends than the existing stockholders

they have first call on any dividends distributed by the corporation. dividends are often guaranteed. the cost is higher than that of common stock because there is a commitment to constant outflow of funds.

special debt issues classified by the length of time to pay it back

than one year. self liquidating. meaning the loan is used for a purpose that will generate enough cash to repay it.

last up to five years. must be paid out of the overall financial resources of business

a maturity date beyond five years and is paid through the overal financial resources of a business

• 1. can you repay the loan
• 2. will you repay the loan
• 3. if you dont, how will the bank recomp

• short term debt
• factoring
• inventory loans
• line of credit

is used to get a business through a shortage in its cash supply. if cash collections an payments of a business do not come at the same time. "cash deficiency" loan can be paid during a cash surplus period

another type of accounts receivable, buys a business's accounts receivable and in return charges a fee plus intrest. it assumes responsibility for collecting on the accounts and must absorb any losses for bad debts

special type of commercial loan used to buy inventory or raw materials. the loan can be paid after it has sold the goods

prior arrangment with a lender to borrow money up to some maximum. it can be borrowed against its line of credit any time during the duration of the agreement. interest is charged only against the amount actually borrowed, a line of credit is like a credit card at a department store for an individual. only given to business with well established credit records

composed of loans, other credit arrangements that are paid off over a period longer than one year. intermediate matures in less then five years. long term debt can last for as long as thrity years. itermediate and longterm debt is used to acquire fixed assets and provide some of the basic financing of a company, as working capital. paid off out of the general term debt.

• unsecured term loans
• equipment loans
• real estate loans
• equipment leasing
• flooring

issued to a company that proves it has financial strength & profitability to repay the loan. owners contribute 40-50 % of equity

mortgages secured by commercial and industrial property. made for a part of the property value and are amortized, repaid in installments over a long period of time. 10, 15, 20 years

instead of buying a business or individual will lease if from a financial institution.it isn't carried as an asset or liability (lease obligation) hence payments can be written off each yeas as an expense

a specialized debt vehicle used by certain retailers such as car, boat, and furniture dealers. flooring arrangement, the lender retains a security intrest in the merchandise. business pays a monthly intrest charge and pays off the principal as each item is sold. they are revolving and can be renewed periodically

• a. angles
• b. loans from families and friends
• c. mortgage loans
• d. commerical loans
• e. sba loans
• f. state & regional development company
• g. venture capitalist