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R16: raising finance - SMEs (2 debt factoring (selling debit to factoring…
R16: raising finance - SMEs
1 retained earnings and working capital management
if receivables (customers) < payables (suppliers) then using working capital to finance business
retained earnings more often avail to established business bc they have had time to recover capital investment to set up the business
2 debt factoring
selling debit to factoring house, factoring house pays bus 90% of debt, remained paid when house receives full payment from debtors/custs
:green_cross: chasing unpaid debtors; :green_cross: creditworthy analysis
:check: avail cashflow and working capital resources :check: debtors/cust cash rec'd immediately
recourse factoring - bus deals with cust non-pymt
non-recourse - house deals with cust non-pymt
3 bank odraft + facility finance
odraft
HM, %, fee, notice, covenants, review, security
facility fin
capital market borrowing for long term
bilateral: bank + borrower
syndicated:
multiple lenders (led by one) + 1 borrower (shares banks' credit risk)
DRAWN FEE
(rate charged) = 3m LIBOR + 250bps (2.5%)
COMMITMENT FEE paid upon establishment of facility (e.g. before fees are drawn down) which in effect states a commitment to use the facility at a future time
4 lease
lessor = bank
lessee = bus
bank owns the asset
bus makes 'repymts' to bank (like a loan)
final pymnt @ term end for bus to take o/ship of asset
secured borrowing
finance lease: lessor retains o/ship, but bens & risks transferred to lessee
operating lease: lessor rents asset to lessee who may use, but not own asset
5 equity finance
nominal value = price on balance sheet
market value = current buy/sell price in the market
6 venture capital & private equity
non-public issuance of shares
7 hedge funds
short selling (sale price fixed now, sell at future date, in the belief that the share rpice will drop, so the seller can buy the shres at a lower price when the were sold at ahigher price
future date at fixed price,
risk reduction per FOHF - allow specialists to buy into hedge funds - diversifying investment risk.
angel investors - usually high net worth individuals investing in very new businesses - either as individuals or as a syndicate