The
ENTREPRENEURIA
L
MIND!
Prepared by: MR. ANGELO P. ABELLANOSA
FINANCING
the
VENTURE
PRELIMINARY TERM: LESSON 05
I. Capital Requirements and Its
V. Short-Term Creditors
kinds
VI. Types of Creditors
II. Owners’ Equity
III. Long-Term Borrowing VII. Other Sources
IV. Types of Fund Sources VIII. The C’s of Credit
CAPITAL REQUIREMENTS
From an entrepreneur’s
viewpoint, capital is not all
about or does not
necessarily mean money. In
fact, some entrepreneurs
consider idea an innovative
idea as a form of capital
that is much more precious
than money.
CAPITAL REQUIREMENTS
From financial viewpoint, capital comes in monetary terms and in three
forms as follows:
1. FIXED CAPITAL
It refers to the money needed to purchase fixed assets or
capital goods such as buildings, machinery, and office
equipment.
2. WORKING CAPITAL
It is needed to fund the day-to-day operations of the business
and represents the money or hard cash to support its normal
short-term operations. Example utilities, stock/inventory, and
payroll.
3. GROWTH CAPITAL
It is not related to daily or seasonal requirements for funds of
the business. Instead, growth capital requirements are needed
when an existing business is set to expand, diversify, or
change its directions.
OWNERS’
EQUITY
In a corporation, the contribution of the
owner to the capital of the business is
called Equity. It is also oftentimes
referred to as the ownership in the
corporation and the holders of stock
certificates are called stockholders.
LONG-TERM
BORROWINGS
Long-term, as well as medium-term creditors, refer
to organizations whose main businesses are
generally meant for providing such form of financial
assistance. Generally, they include banks and
mortgage houses that provide funds or capital
whose payment are made on a long-term basis.
THREE TYPES OF FUND SOURCES
1. MORTGAGE
A mortgage takes the form of fund generation by way of
pledging a designated property as security or collateral for
the loan.
2. BONDS
These are forms of indebtedness of the issuing company
that promises a fixed amount of interest to the
bondholders upon maturity or call by its holders.
3. LONG-TERM COMMERCIAL PAPERS
LCPs are commercial documents issued by large
companies with credible track records.
SHORT-TERM
CREDITORS
Short-term creditors take the form of financiers on
a short-term basis lasting to one year or less. In
some cases, they include fund providers who may
not demand voluminous documents like business
plans or feasibility studies. These creditors can
serve as a stand-by credit facility to the
entrepreneur.
TYPES OF
1 CREDITORS COMMERCIAL BANKS
Are duty-bound to provide both short-term and long-term financing to any
viable business project.
MERCHANDISE SUPPLIERS
2 The company’s inventory or stock can be procured either through cash or
credit terms.
CREDIT CARD COMPANIES
3 Credit card is the most convenient , yet the most expensive loans term you
can find in town and it’s actually one of the most overlooked avenues in
obtaining start-up capital.
CAPITAL EQUIPMENT SUPPLIERS
4 In their desire to sell equipment, suppliers will often make every favorable
term available even to new companies. This is possible because the
equipment itself secures the loan.
TYPES OF
5 CREDITORS LEASING COMPANIES
They make possible the procurement of capital items or equipment for the
company. This arrangement, however, can work the other way around if
the entrepreneur holds the design of the capital equipment.
RECEIVABLE FACTORS
There are many specialized organizations like credit and collection
6 companies of even individuals who take the risk of buying receivables at
discounted rates.
DEFERRAL OF PAYABLES IN GENERAL
When the company is in a difficult situation or when the money position of
7 the company is tight, most companies lag behind in their payment of bills
and loans.
OTHER SOURCES
1 LENDING INVESTORS 5 FRIEND AND RELATIVES
2 GOVERNMENT INSTITUTIONS 6 EMPLOYEES
NON-GOVERNMENT PURCHASE ORDER
3 ORGANIZATIONS (NGO) 7 FINANCING
USURERS
4 POLITICAL SOURCES 8
THE C’s of
CREDIT
To be able to avail the financing from the bank or
any other commercial sources, prospective
entrepreneurs must be aware that lenders or
creditors apply the basic principles of the so-called
C’s of credit.
COLLATERAL
1 All formal sources of funding generally require a collateral in the form of real
state, equipment, or any other form of easily saleable property.
CAPACITY
2 This refers to the capacity of the entrepeneur or borrower to pay for the loan
CHARACTER
3 This is more of the personal standing of the entrepreneur or borrower in his
community.
CONTRACT
4 Each loan or borrowing transaction has to have contract or agreement
defining the obligations of the contracting parties.
CONDITIONS
Forming part of the major content of the contract are the terms and
conditions set forth in the contract or agreement. The conditions essentially
5 refers to the terms or mode of payments, interest rates, penalties, and
sanctions in case of default, as well as provisions for settlement of disputes
as necessary.
