1. the sources of funding within your business:
    • when a company makes a profit
    • your customers
    • trade credit
  2. you can increase customer collections in two ways:
    • a. partial payments on long-term projects
    • b. put an aggressive credit collection policy into effect
  3. trade credit
    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.
  4. suppliers may be willing to extend
    intrest-free credit on purchases of goods or services to well-established customers
  5. an excellent source of low-cost or no-cost money
    trade credit
  6. well-established customers might be granted a
    thirty, sixty or even nintey days to pay an invoice
  7. an interest-free loan
    means that you may be able to order, obtain delivery, and sell an item before you have to pay for it
  8. advantages of internal sources
    • 1. very low cost
    • 2. careful manage, can make external source more available
    • 3. low risk
    • 4. max flexability
    • 5. you retain control
  9. disadvantages of internal source
    • 1. overly aggressive credit policy alienates customers
    • 2. difficulty in converting assets needed to produce income or effective operations in cash
  10. External source
    • sole proprietorships
    • partnership
    • corporations
  11. equity
    capital funds inveted by owner(s) invested capital of firm
  12. sole proprietorships
    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.
  13. sole proprietorship personal assets
    savings accounts, life insurance policies and collateral loans on personal assets
  14. partnership
    find it easier than sole proprietorships to raise equity capital. many proprietorship become partners in an effort to raise additional funds.
  15. a partnership makes it easier to rainds funds for two reasons:
    • 1. ea. of the partners can be tapped for additonal funds
    • 2. additional partners and their money can be added to a partnership
  16. general partnership
    ea. partner shares control and profit of business
  17. limited partnership
    restricted to contributing capital
  18. three general sources of equity funds available to the corporations:
    • common stock
    • preferred stock
    • debt financing
  19. common stock
    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.
  20. exisiting stockholders are able to maintain their proportionate control of the business by exercising their
    preemptive right, some cost only if the new stockholders demand more dividends than the existing stockholders
  21. preferred stock
    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.
  22. debt financing
    special debt issues classified by the length of time to pay it back
  23. short-term debt is usually paid off in less
    than one year. self liquidating. meaning the loan is used for a purpose that will generate enough cash to repay it.
  24. intermediate loans
    last up to five years. must be paid out of the overall financial resources of business
  25. long term debt
    a maturity date beyond five years and is paid through the overal financial resources of a business
  26. bankers will want to know the answers to three questions:
    • 1. can you repay the loan
    • 2. will you repay the loan
    • 3. if you dont, how will the bank recomp
  27. use of types of debt
    • short term debt
    • factoring
    • inventory loans
    • line of credit
  28. short term debt
    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
  29. factoring
    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
  30. inventory loans
    special type of commercial loan used to buy inventory or raw materials. the loan can be paid after it has sold the goods
  31. line of credit
    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
  32. intermediate and long term debt
    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.
  33. intermediate and long term debt falls into the general categories described:
    • unsecured term loans
    • equipment loans
    • real estate loans
    • equipment leasing
    • flooring
  34. unsecured term loans
    issued to a company that proves it has financial strength & profitability to repay the loan. owners contribute 40-50 % of equity
  35. real estate loans
    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
  36. equipment leasing
    instead of buying a business or individual will lease if from a financial isn't carried as an asset or liability (lease obligation) hence payments can be written off each yeas as an expense
  37. flooring
    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
  38. sources of funds
    • 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
Card Set