Comm320-09-FinancingWK9

Comm320-09-FinancingWK9 - Financial Management And The...

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    Financial Management And  The Entrepreneur  Obtaining The Required Funds  
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    Sources Of Funding Personal funds Partners Love money Banks Factoring Leasing Trade credit Government Venture capital Dependent on the size of the business
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    Personal Funds, Partners, And  Families The first place most venture founders look to  finance their idea/business Bootstrapping : use personal savings, second  mortgage on the house, credit cards, LCR Partners can increase the cash pool (resources)  and assist in running the business Love money: relatives are another much-used  source of funding for new businesses -- contracts  and keeping careful records is important
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    Debt Financing Banks:  Loan requires repayment of principal + interest over a period  of time Interest is tax deductible (normal business expense) Banks generally do not lend to new business ventures  (conservative   prefer to see a track record) Collateral is most often required to obtain a loan for a new  business venture  A personal guarantee is also often required (supported by  mortgages and/or a co-signer) 
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    Collateral Chattel mortgage: for purchase of equipment -- up to 80%  Insurance: term insurance with the bank as the beneficiary of  the policy -- life insurance or fire insurance Inventory: valuation range from 10 to 60% often 50% for  finished goods Personal guarantees: loan is made to the entrepreneur not  the business Demonstrates commitment and reduces risk for lender Real estate: up to 75% of the appraised value 
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    Types Of Loans From Banks Operating or Working Capital Loans Used to look after day-to-day operating requirements Lines of credit: to pay employees, purchase materials  and meet obligations May be secured by receivables, fixed assets or other  collateral Interest is on a daily basis and payments are made  monthly Interest rates are usually 1 to 2.5% above the prime  rate
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    Types Of Loans From Banks Term loans  Used to purchase fixed assets or for large  projects (renovation, expansion) The term may be five years or more Interest is on a daily basis and payments are  made monthly Interest rates are usually 1.5 to 3.5% above  the prime rate
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This note was uploaded on 04/14/2010 for the course COMM comm 320 taught by Professor Denisbeauschesne during the Winter '10 term at Concordia Canada.

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Comm320-09-FinancingWK9 - Financial Management And The...

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