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Raising finance [SMEs] - B207, block1 reading 16 (Debt factoring…

- - - - Receivables minus payables
    - - Withholding payment to suppliers
        
        Supermarket could
        
        Builder couldn't
        
        EU directive 2000/35/EC (EU, 2000)
        
        Lifted ristrictions
        
        Charge interest on late payments
- - - - Up to 90% paid immediately
      - 10%+ retained until paid
    - - Recourse
        
        Non-payment of invoice
        
        Risk remains with company
        
        Lower fees
      - Non-recourse
        
        Non-payment of invoice
        
        Risk with FH
        
        Higher fees
- - - - Seasonal variation in cash flow
      - Temporary shortages
    - - Interest chargeable
      - Fees for useage
      - Maximum size
      - Review period
        
        Typically annually
      - Covenants on financial performance
      - Notice periods (if any)
      - Security
        
        Property
        
        Assets
  - - - Borrower & a banking facility
    - - Long term finance
        
        Bonds and securities
    - - Number of banks
        
        Shared risk
        
        One bank arranges
        
        Invites other banks into deal
        
        'sold down'
        
        Larger proportion initially
  - - - Determines interest rate
      - Draw fee
        
        When funds are 'drawn down'
      - Committed
        
        Organisation complies with terms
        
        Funds available when requied
        
        Drawn fee
        
        Plus commitment fee
      - Uncommitted
        
        No obligation from bank
        
        Economic conditions assessed
        
        Drawn fee
        
        Plus commitment fee
- - - - e.g. needs IT equip
      - Akin to loan repayment
        
        Final payment to secure ownership
  - - - e.g. Bank buys and leases to #
  - - - Ownership
        
        Remains with bank
      - Benefits and risks
        
        With Lessee
    - - Shorter term
        
        Ownership
        
        Remains with bank
        
        Benefits and risks
        
        Remains with bank
        
        Borrowing
        
        Rental payments
- - - - Capital growth
        
        Increase in share price
      - Dividend yield
      - Ordinary
        
        Ownership
        
        Entitlement
        
        After debtors
        
        Voting rights
        
        No automatic right to dividends
        
        Behind preference share holders
      - Preference
        
        Ownership
        
        Fixed dividend rate
        
        Paid before ordinary share holders
        
        Voting in major issues only
      - Share warrants
        
        Share holder
        
        The right to purchase
        
        Defined rate
        
        'strike price'
        
        No obligation
- - - - Suppliers of private equity
  - - - Companies
  - - - Compliance
      - Corporate governance
    - - Size
      - Risk
      - No established track record
    - - Less exposed to take overs