Sources and Uses of short-term and long-term funds

Bonds

Are financial instruments that promise a specific periodic payment to the owner of the bond. Interest rates and bonds are generally lower than bank loans.

Lending companies and cooperatives

Are financing from non-bank institutions

Credit cards

Are issued by a financial institution that allows the card holder to borrow money to purchase with an assigned credit limit of a specific amount during a given period. Just take note of the high interest rates on the source of funds.

Bank loans

Are the first to go to consider in the context of corporate debt. Bank loans usually require some type of collateral, an asset that the bank can confiscate and sell if the borrower fails to make payments

Demographic

Includes the name (or business name), birthdate, current and previous address, Social Security number, taxpayers identification number, phone number, and other personal identification information such as valid government issued identification cards.

Venture capital

Is a form of private equity and the type of financing that investors provide to start up companies and small businesses that are believed to have long-term growth potential.

Shares

When a company sells shares to other investors, it gives up a piece of itself as a way to raise money finances growth

Long-term finance

any financial instrument with a maturity exceeding one year (such as bank loans, bonds, leasing, and other forms of debt finance), and public and private equity instruments.

Equity financing disadvantages

- Return you pay an investor could be more than bank loan repayments - The investor requires some ownership of your business - You need to consult the investor before making business decisions

Debt financing advantages

- The bank can't tell how to run the business. The owner maintains the full ownership - After paying the loan off, you have no obligations to the bank - Interest on the loan is tax-deductible - You can get a short-term or long-term loan - you know what the principal and interest cost, so you can create a business budget.

Equity financing advantages

- You have less risk than you would loan - You don't pay the funds back - Your investors network could help you business gain credibility - Investors don't expect to see an immediate return on investment - You have more cash on hand without repayments

Debt financing disadvantages

- You have to pay back the loan within a designated period - could cause small business cash flow problems - You will probably need to offer business collateral

Duties of the Borrowers to Creditors

1. Pay the creditors based on the payment schedule agreed upon. 2. Provide collaterals as agreed upon in the loan negotiation with proper documentation , if necessary and if applicable 3. Comply with the provisions of the loan covenant such as maintaining certain liquidity and leverage ratios.

Attest and authorization letter

Fixing the applicant signature on the credit application stating that all application information is true and correct and authorizing the lender to verify the information provided with identified contacts and references.

Capital

Refers to the applicants financial resources. They evaluate the statement of assets and liabilities, audited financial statements, etc.

Condition

Refers to the current economic and business conditions of the applicants business. Required to submit the latest news articles relating to the content (if listed), trends in the financial statements, business background or company profile, etc.

Contacts and references

Requiring the identification and contact information of existing employees, previous employers, or even nearest relative not living with the applicant (personal loan).

Most common sources of funds

- Bank - credit cooperatives - commercial finance companies Other sources of funds - credit cards - pawnshops - informal lending sources

Character

Is established based on the applicants commitment to repay previously loans. Conduct interviews and evaluate the filled out a quick loan application form, NBI clearance, police clearance, etc.

5Cs of Credit

- Character - capacity - collateral - capital - condition

Two types of financing

Debt financing and bank loans

Bank

Is an establishment for the deposit, custody, and issue of money, for making loans and discounts, and are making the exchange of funds. This under the supervision regulated by the Banko Sentral ng Pilipinas. The Philippines banking system is composed of universal and commercial banks are present the largest single group that offer the widest variety of banking services among financial institution; thrift banks is composed of savings, and mortgage banks, private development banks, stocks savings banks, and loan associations and micro-finance thrift bank; and rural and cooperative banks more popular in the rual communities their role is to promote and expand the rural economy by providing basic financial services and helping farmers from buying seedlings to the marketing of their produce.

Loan Application Requirements

- Demographic - Income and revenue - Assets and liabilities - Contacts and references - Attest and authorization letter

Typical loan process involves

- Duly accomplished application form and the required documents - Verification of information in the application form and required documents may include interviews - Checking credit history - writing credit report and appropriate recommendation - Documenting for final decisions If approved, final documents to be signed the contract and terms and conditions. If Rejected, a rejection letter will be sent to the applicant

Commercial Finance Companies

Are a non-bank organization that provides loans to individuals and businesses for the purchase of inventory and equipment. To Secure a business loan the borrower is required to pledge any assets used in the conduct of the business as collateral. Also called asset-based lending or asset-based finance

Taking on a partner

Is one oldest forms of equity financing. Looking for partnerships to chip in, they will have equity in the business and become part owner

capacity

Is the applicants ability to pay debt based on income and other obligations. By evaluating income documents such as certificate of employment, audited financial statements, income tax return, etc.

Financing

Is the process of providing funds for business activities, making purchases, or investing. Financial institutions, such as banks, are in the business of providing capital to businesses, consumers, and investors to help them achieve their goals.

Informal Lending sources ("Five-six")

Extend loans without collateral or any documentary requirements but charge the borrowers an exorbitant nominal interest rate of 20 percent or more over an agreed period.

Debt financing

Involves borrowing funds from creditors either short term or long term with interest at a specified future of time. Examples are: - Bank loans - bonds - Lending companies and cooperatives

Equity financing

Is a method of raising capital by selling company stock to investors (stockholders) in exchange for ownership interest in the company. With equity financing, you don't have to make repayments or pay interest. Instead, you share your profits with the investor. Examples are: - Shares - Venture-capital - Taking on a partner

Credit Cooperatives

Is a non-bank financial things organization on the control by its members, who can borrow low interest rates from the amount of money they save as a group. provide financial services to the poor and low income people in the countries. The primary objective is to help improve the quality of life of its member. Aims to provide goods and services to its member to attain increasing income, savings, investments, productivity, and purchasing power. This institutions attempt to differentiate themselves by offering above-average services along with competitive rates in the areas of insurance, lending, and investment dealings. In the Philippines, all cooperatives are regulated and supervised by the cooperative development authority (CDA). The BSP in coordination in the CDA shall prescribe the appropriate prudential rules and regulations applicable to the financial service cooperatives according to republic act no. 9520 also known as "Philippines cooperative code of 2008."

Assets and liabilities

May be asked to disclose the checking savings and investment accounts and there astounding loans and credit cards. For those with existing businesses may require financial statements and business registration.

Pawnshops

Provides funds in exchange for collateral, usually jewelry, or other items in value famous word "sangla". Allows quick access to money to every Filipinos to get through "petsa de peligro", need additional capital for a small business, and financial emergencies in the family

Collateral

Refers to an asset that secures the loan. They evaluate the value of the asset and the authenticity of documents such as copy of the transfer of certificate title (TCT), or condominium certificate of title (CCT), tax declaration, building plan, etc.

Income or Revenue

Refers to current personal income or employer, employment, and salary history, and business revenue for those who have an existing business

Short-term finance

refers to financing needs for a small period normally less than a year. This type of financing is normally needed because of the uneven flow of cash in the business, the seasonal pattern of business, etc. In most cases, it is used to finance all types of inventory, accounts receivables, etc.