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Unit 4 Types of Financing - Coggle Diagram
Unit 4 Types of Financing
Internal and External Financing
Differentiation: Legal status of capital providers & funding source
Four Basic Types
External debt Loan,Bond,Trade Credit
Internal debt: Accrued liability reserves
External equity:
Financing with equity
Personal Companies (Partnerships)
Determining Creditworthiness
Credit History
Income levels
Debt To Income Ratio
Empoyment stability
a corporation with a strong financial
track record and sufficient equity capital
Internal Equity:
Contribution of existing partners (Capital Increase).
External Equity:
Admission of New Partners (Cash, Assets, or "Sweat Equity").
Corporations
Common Stock-
Common Stock (Full voting rights, variable dividends).
Preferred Stock
(Fixed dividends, priority in liquidation, usually no voting).
Internal equity: Self financing(retained earnings)
Retained Earnings
Reinvestment in Business
Business Growth
Debt Reduction
Financial Stabiity
Cost Savings
Increased Profit margins
Business Growth
Long-Term Sustainability
Asset liquidation
Cash Flow Improvement
Business Growth
Long-Term Sustainability
Mezzanine financing
Prefered Stock
external financing.
The statement that, in a general partnership, equity financing can only be obtained by increasing
the equity stake held by existing partners is false.
Adding new partners: The partnership can bring in new partners who contribute capital
(cash, assets, or even expertise/services, known as "sweat equity")
in exchange for an ownership stake.
Equity financing
(Debt financing) Loan financing By taking Debt!
internal financing
Self-financing
Debt Financing
Providers Of Outside Capita are Creditors
From The Company Perspective The Borrowing Costs are Setelled First even Before Equity Investors if it goes Bankrupt
Which of the following rights do a company’s providers of debt capital normally have?
right to payment of interest on the capital they provide
right to repayment of the capital they provide
Unlike Equity investors Creditors have no Say in how company Runs Its Business.
Creditors are not impacted by the Profits or Losses of The Company.
That WHy They have an Agreement on the amount and mode of intrest
A Fixed Rate of Return is Agreed on for Their Security.
Loan Financing via Banks & Financial Institutions
Creditor Security vs Equity investors
Means Creditors dont det profit or loss but have a legal right to payment
Collateral: Risk-sharing
Types of Collateral Include Agreements and legal Mechanisms
Such as Liens on Movable Property and rights
Retention of Title and transfer of Title For Security Purposes
As well As Mortigages info
Covenants or Loan Covenants
Documents for Credibility Cheks
Annual Financial statements
In Particular Tax accounts
Profit And Loss statements
Credit Status or Interim Balance Sheets at the time of Application
Audit Reports by Auditors and experts
Schedule of Available Colletaral
Volume of Orders & Investment Activities
Financial planning
Collateral
Excerpts from Registers
Commercial Registered
Land Registry
Cadaster (A Real Estate Register)
Disadvantages
Mandatory repayment
Intrest burden
Collateral Requirements
Financial Covenants
Bankruptcy Risks
sources
Commercial Banks
Investment Banks
Private lenders
Bond Markets
Government Programmes
Loan Financing via Capital Markets(Corporate bonds,Commercial papers)
Long Term (Atleast one Year)
Corporate Bonds
Short Term
Commercial Papers
Long-Term & Short-Term Loan Financing
Long Term
Financing Viva Capital MArkets
Business Loan
IOU's and Warrants
The Financial Term is not more than 15 Years
Short Term
A checking Account Overdraft Option
Trade Credit
it IS a B-B Agreement that i will pay on a later date
Advantages
Rapid Credit Availability
Convenience Lack of formal Requirements
No Formal Credit Checks / Less Stringent Standards
Credit Protection through Retention of Title
Disadvantages
Amount of Capital Costs
Risk of Dependency on the Supplier
Customer Loan
Lombard Loan
Types of Loans
Annuity Loan
Installement Loan
Fixed Loan
Trade Credit
Customer loan
Lombard lending
Types of Loans (Annuity, Installment, Fixed)
Equity Financing
In the case of a general partnership, equity financing can only be obtained by increasing the equity stake held by existing partners is false
Common and preferred stocks bestow financial rights.
Equity financing can take the form of financial and assets in kind as well as assignment of rights.
The transfer of stock subject to transferability restrictions requires the consent of the company
Activities: Selling equity Stakes
Occasions: Founding, new shareholder, Capital increases,IPO
Legal Form Dependence
Personal Companies
Corporations (Types of corporations)
Limited Liability Companies
Stock Corporations
General Partnership
Share Capital Requirements
Types of Shares (Common, PREFERED,Bearer, Registered)
Additional Financing Options
Finance & Operating Lease Agreements
Leasing vs Renting
Operating Lease
Finance Lease (Capital Lease, Full-payout Lease)
Amortization:Full & Partial
Sale-and-leaseback Transaction
Factoring
Purchase of receivables
Advantages
Export factoring
Forfaiting
Purchasing of receivables from Exporters
Advantages for supplier
Study Goals
what is meant by the terms debt and equity financing.
what external and internal financing are.
the different types of credit financing.
the various possibilities for equity financing.
the different types of additional financing options.
the pros and cons of various types of financing