Bus 316 test study guide

Bus 316 test study guide - 1 What are the 2 types of...

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1. What are the 2 types of external financing and their characteristics? Debt financing is a financing method involving an interest-bearing instrument, usually a loan, the payment of which is only indirectly related to the sales and profits of the venture. Typically debt financing requires that some asset be used as collateral. Equity financing does not require collateral and offers the investor some form of ownership position in the venture. The investor shares in the profits of the venture, as well as any disposition of its assets on a pro rata basis based on the percentage of the business owned. 2. Know examples of internally generated funding and its advantages. Some examples of internally generated funds are profits, sale of assets, reduction in working capital, extended payment terms, and accounts receivable. The main advantage is that they are lower costs sources of funding. 3. Be familiar with different types of bank loans. Accounts receivable – bank buys your accounts receivable from you at a value lower than actual value. Inventory – Usually the finished goods inventory can be financed for up to 50 percent of its value. Equipment – Equipment can be used to secure longer-term financing, usually on a 3- to 10-year basis. Equipment financing can fall into any of several categories: financing the purchase of new equipment, financing used equipment already owned by the company, sale-leaseback financing, or lease financing. When new equipment is being purchased or presently owned equipment is used as collateral, usually 50 to 80 percent of the value of the equipment can be financed depending on its salability. Real estate – Real estate is also frequently used in asset-based financing. This
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Bus 316 test study guide - 1 What are the 2 types of...

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