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Financing the organisation - SMEs - Coggle Diagram
Financing the organisation - SMEs
Retained earnings
Net profit
Former periods
Difficult for new businesses
Not impossible
Start-up costs
High
Before
Dividends
Shares
Debt factoring
Receivables sold
Factoring house
Pay at discount
Cash available immediately
Lower burden
No risk
No creditor management
Receivables worth less
Recourse
Debtor can't pay
Back to business
Non-recourse
Debtor can't pay
Factor house responsibility
Banks
Overdrafts
Current account
Negative balance
Negotiate
Size
Interest
Fees
Review period
Covenants
Financial conditions
Performance related
Notice periods
Security
Guarantee
Typically property
Short-term
Seasonal
Facility finance
Borrow funds
Right to borrow
Bi-lateral
One bank
Syndicated
One bank organises
Invites other banks
Business draws funds
All available banks
When required
Drawn fee
Risk shared
Interest rate
3-month LIBOR
Equity finance
Issuing of shares
Provides return
Dividend payments
Yearly / Half-yearly
Share price growth
Ordinary
No entitlement to dividend
Voting rights
Share of profits
After creditors
Preference
Dividends must be paid first
Fixed rate
Limited voting rights
Share warrants
Right to buy
Strike price
Nominal value
Price on balance sheet
Maturity payment
New shares no lower than
Market value
Bought & Sold
Venture capital
Private equity
Investors in business
High-risk
High-return
Typically smaller business
Unsuitable for public listing
Restricted trading history
Faster access to cash
Less exposed to takeover
Angel
Early investors
Hedge funds
Venture capital companies
Working capital management
Working capital
Inventory
Cash
Receivables
Less payables
Alternative financing
Loan
No interest
Size dependent
Difficult for new business
Credit history
Supplier terms
Customer terms
Easier
Cash buyers
Direct debit
Credit terms
More difficult
Manufacturing
Invoice at end
Negative working capital
Leasing
Bank buys asset
Asset leased
Defined term
Regular monthly payments
End of term
Option to purchase
Bank = lessor
Business = lessee
Two types
Finance leases
Bank legal ownership
Goods
Benefits & risk
Transferred to business
Operating leases
Borrowing from lessor
Rental payment
Secured borrowing
Asset = guarantee
Cash flow benefit
Capital
Enables payment
Provides liquidity
Creditors
Employees
Suppliers
Enables investment
Long-term projects