firm's sources of financing (exam 2)
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16 Terms
debt financing
raising money by BORROWING funds that must be repaid with interest
equity financing
raising money by SELLING ownership shares exchange for capital without obligation
potential profitability for owners
debt > equity
business financial risk
equity > debt
who will have voting control of business
debt > equity
commercial banks are
primary provider of debt capital to established firms
lines of credit
informal agreement between borrower and bank
maximum funds provided at any one time
term loan (finance equipment)
money loaned for 5 to 10 years
length time investment will bring in profits
mortgage
loan for items of inventory of moveable property or real estate mortgage
order of importance, the priorities of a banker when making a loan
recouping principal of loan
determine amount of income the loan will provide bank
helping borrower be successful and larger customer
five C’s of credit
character
capacity
capital
collateral
conditions
obtaining loan requires well-prepared loan request
how much money needed
what are doing with money
when money needed
how and when paid back
banker will also want to see if possible
3 years of historical financial statements
firm’s pro forma statement
personal financial statement
business angels
private individuals who invest funds into business
venture capitalists
professional investment firms that manage pooled funds and invest in high growth potential in exchange for equity
crowdfunding
raising small amount of money from large number of investors on internet