Lenders favor open, honest applicants.Capital is needed throughout the life of a company for start-up, for growth and development and for covering shortfalls in operating revenue operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. . The latter occurs with increasing frequency when the economy is sluggish, forcing many entrepreneurs to investigate debt financing Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay . Some of the most common types of debt financing available to the entrepreneur include demand loans, lines of credit, bridge loans, conditional sales conditional sale n. a sale of property or goods which will be completed if certain conditions are met (as agreed) by one or both parties to the transaction. Example: Hotrod agrees to buy Tappit's 1939 LaSalle for $1,000 cash if Tappit can get the car running by purchases and floor financing. A demand loan is usually a short-term loan with no set repayment schedule. It is payable on demand by the creditor. A line of credit provided by a bank supports the day-to-day activities of a business. Interest is only paid on any outstanding balance. The line of credit is usually secured by fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → , inventory or receivables. A bridge loan is used as a temporary means to carry a company during its start-up phase or until long-term funds such as grants or other loans can be secured. Conditional sales purchases are often offered by equipment manufacturers. The purchaser takes possession of the equipment after making a down payment, but the equipment remains the property of the manufacturer until the bill is paid in full. Floor financing allows a business to carry large volumes of product for sale. The lender maintains ownership until the borrower has sold the product and received payment. Additional methods of financing include leasing, letters of credit, accounts receivable financing Accounts Receivable Financing A type of asset-financing arrangement in which a company uses its receivables - which is money owed by customers - as collateral in a financing agreement. The company receives an amount that is equal to a reduced value of the receivables pledged. , factoring, inventory financing Inventory financing Used in the context of factoring and general finance to refer to loans to consumer product producers that use inventory as collateral. See also: Inventory loan. and trade credit. Financing can also be supplied by venture capitalists, who provide start-up capital, working capital for expansions, or bridge capital for companies which are preparing for a public offering within 12-month's time. But venture capital is not for the faint of heart. Because venture capitalists demand a high rate of growth from the companies they finance - as much as 10-fold growth in five years - they scrutinize scru·ti·nize tr.v. scru·ti·nized, scru·ti·niz·ing, scru·ti·niz·es To examine or observe with great care; inspect critically. scru every facet of the operation. In addition, most charge a higher rate of interest than do chartered banks. Venture capitalists tend to prefer operating companies, since the failure rate for new companies is especially high. In some cases, the venture capitalist protects his investment by hiring a senior executive to help run the operation. No matter where you go for financing, there are simple rules to follow when applying for financial assistance. First, be certain you know what type of financing your company needs before you go to the bank or a venture capitalist. Second, take an honest look at your operation and address any weaknesses before you apply for financing. Financial institutions will examine your operation to make sure it has an experienced and effective management, modern technology and a sound marketing program. When you make an application for funding, experts advise that you take the following: * a completed general information form * balance sheets * profit and loss statements * cash flow projections A Cash Flow Projection is an attempt to forecast the cash flows that will be generated by an asset, often a company, over a specified time frame. Methodology Projections can be made with varying levels of detail, but any cash flow projection for a business entails * a list of accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying * a list of accounts payable |
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