BF-M4

Question 1

is essentially the act of raising capital by borrowing money from a lender or a bank, to be repaid at a future date.

Answer 1

Debt Financing

Question 2

is the process of raising capital through the sale of shares.

Answer 2

Equity Financing

Question 3

Sources and Uses of Short-term Funds:

refers to the extension of payment due date by suppliers.

Answer 3

Suppliers Credit

Question 4

Sources and Uses of Short-term Funds:

personal funds advanced by a stockholder to a company that usually requires interest. These usually require little to no interest on advances, especially if the owner is advancing funds to assist the company in sudden liquidity crisis. This source, however, is depended on the availability of funds of an individual.

Answer 4

Advances from stockholders or other owners

Question 5

Sources and Uses of Short-term Funds:

provided lending services to its members. Members usually pay contributions to the cooperative.

Answer 5

Credit cooperatives

Question 6

Sources and Uses of Short-term Funds:

provides several loan products catering to different types of needs.

Answer 6

Banks

Question 7

Sources and Uses of Short-term Funds:

just take note of the high interest rates on this source of funds.

Answer 7

Credit Cards

Question 8

Sources and Uses of Short-term Funds:

companies that are dedicated to lending. They usually charge higher interest than banks, but their credit requirements are more lenient compared to banks.

Answer 8

Lending Companies

Question 9

Sources and Uses of Short-term Funds:

provides funds in exchange for collateral, usually jewelry, or other items of value.

Answer 9

Pawnshops

Question 10

Sources and Uses of Short-term Funds:

Interest is usually paid per month, and monthly interest is 20%.

Answer 10

Informal lending sources (5/6)

Question 11

Factors Considered in Selecting the Source of Short-term Financing:

informal lending sources like 5/6 may be the most expensive.

Answer 11

Cost (Interest)

Question 12

Factors Considered in Selecting the Source of Short-term Financing:

informal lending sources like 5/6 is most available because there are no formal requirements to avail of the facility.

Answer 12

Availability of short-term funds

Question 13

Factors Considered in Selecting the Source of Short-term Financing:

whatever the source of fund is, if the company defaults, the lenders may foreclose some of the company’s properties or even the entire business itself to settle the loan.

Answer 13

Risk

Question 14

Factors Considered in Selecting the Source of Short-term Financing:

this pertains to the ability of the company to access funds. For example, a bank loan may be cheaper, but the bank may reject the loan application of the borrower because he/she did not pass the credit evaluation process of the bank.

Answer 14

Flexibility

Question 15

Factors Considered in Selecting the Source of Short-term Financing:

some lenders like banks may require a minimum deposit balance with their branch for as long as the loans remain outstanding. The bank’s approval may also be secured before cash dividends can be declared

Answer 15

Restrictions (Debt covenants)

Question 16

Sources and Uses of Long-Term Funds:

In investing terms, ____purchase stock for a share of ownership in companies with the expectation that the stock may earn dividends or can be resold with a capital gain. If the investment were to rise in value, the equity they could get for selling it potentially increases.

Answer 16

equity investors

Question 17

Sources and Uses of Long-Term Funds:

not all profits are distributed to stockholders. Most of the profits are re-invested and used by companies to finance their needs.

Answer 17

Internally generated funds

Question 18

Sources and Uses of Long-Term Funds:

they provide long-term loans, depending on the nature of the need. For example, a 5-year to 10-year loan may be granted if the purpose of the loan is construction of an office building.

Answer 18

Banks

Question 19

Sources and Uses of Long-Term Funds:

these are debt investments where an investor loans money to an entity which borrows the funds.

Answer 19

Bonds

Question 20

Sources and Uses of Long-Term Funds:

they can also provide long-term loans.

Answer 20

Lending companies

Question 21

5C’s of Credit:
the willingness of the borrower to repay the loan

Answer 21

Character

Question 22

5C’s of Credit:
a customer’s ability to generate cash flows

Answer 22

Capacity

Question 23

5C’s of Credit:
security pledged for payment of the loan

Answer 23

Collateral

Question 24

5C’s of Credit:
a customer’s financial resources

Answer 24

Capital

Question 25

5C’s of Credit:
current economic or business conditions

Answer 25

Condition

Question 26

Duties of the Borrower to Creditors:

______ based on the payment schedule agreed upon. If you cannot pay on time, notify the creditors ahead of time. But as much as possible, _____.

Answer 26

Pay the creditors

pay on time

Question 27

Duties of the Borrower to Creditors:

______as agreed upon in the loan negotiation with proper documentation, if necessary and if applicable (e.g. annotation of the TCT or CCT). Ensure that these collaterals are in the physical condition perceived by the creditors in determining the loanable value of the loans.

Answer 27

Provide the collaterals

Question 28

Duties of the Borrower to Creditors:

____________such as maintaining certain liquidity and leverage ratios. These conditions are supposed to benefit the borrower so that his company will not be over-exposed to borrowing or he will monitor the liquidity position on a more regular basis.

Answer 28

Comply with the provisions of loan covenant

Question 29

Duties of the Borrower to Creditors:

_________ if the company is acquiring another company or the company is now the subject of acquisition. The interest of creditors may be _______ if new owners take over the company or if the company is going to acquire another company.

Answer 29

Notify the creditor

jeopardized

Question 30

Duties of the Borrower to Creditors:

_________ as much as possible. Aside from the creditors, there may be other parties such as the guarantors of the loan who will be put at a disadvantage if the borrower _______.

Answer 30

Do not default on the loans

defaults