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Raising Finance (Through Retained Earning & Working Capital (Negative…

- - - - Small Organisations
        
        Less bargaining power
        
        Getting customers to pay early
        
        Making creditors tolerate late payment of monies due
      - Nature
        
        Companies who receive full monies from customers only on construction are poorly positioned to have creditors finance their business
- - - - Only after creditors (bondholders and banks) have been paid
    - - No automatic entitlement to dividend earnings
      - Voting rights
      - Stand behind preference shareholders when it comes to payment of dividends
  - - - Minimum price at which a share is issued
    - - Current purchase or sale rate of a share
- - - - At the end of the term the lessee makes a final payment to the bank to secure ownership of the assets
  - - - Legal ownership of assets remain with the bank
      - Benefits and risks are transferred to the lessee
    - - Typically short-term agreement
        
        Banks retain the risks and benefits of the leased assets
        
        Lessee is in effect borrowing the assets from the bank and making a rental payment for the use of the assets
- - - - Funds with variety of structures
      - Variety of investment strategies
    - - Targeted at wealthy individuals with high net worth
      - Hedge fund managers can charge high fees for their service, linked to performance of funds
      - Adopt riskier investment strategies
      - Lightly regulated
- - - - Remaining balance paid if/when the organisations debtors pay the third party
    - - The organisation gets cash promptly allowing it to pay its suppliers
      - Provide working capital to continue business activities
      - Avoids wated time on chasing debtors and completing analysis of creditworthiness
  - - - Third party will come back to the organisation in the event of non-payment from debtors
    - - Risk of non payment from the debtor is transferred to third party
- - - - Terms
        
        Overdraft size
        
        Interest chargeable
        
        Utilisation fees
        
        Financial performance
        
        Notice periods for drawing the overdraft
        
        Security provided
  - - - Support the costs of entry
      - Do not have credit ratings to borrow money from money & capital markets
    - - Borrower raises funds or establishes the right to draw on banking facility from one bank
    - - A number of banks have a share in the facility
      - The borrower draws funds from each
      - Credit risk shared amongst lending banks
      - One bank will be the syndicate arranger, inviting other banks into the deal
    - - Interest rate linked with 3-month LIBOR
      - 1%-2.5% added margin from the bank(s)
    - - Paid by borrowing organisation when the facility is put in place
        
        Borrowers are paying for the right to borrow under the facility when funds are required
    - - The rate at which leading banks are prepared to lend money to each other for defined periods (3 months)
    - - Long-term relationship with bank
      - Bank has an understanding of business risks and quality of management
      - Quick and flexible solutions can be found for financing needs