EntFin-Ch12 Flashcards
(26 cards)
commercial vs venture bank lending
venture bankers usually get warrants in addition to interest
warrants
right to interest and principal + convertible to equity at specific price
five C’s of credit analysis
1) capacity to repay
2) capital, reflects personal accountability
3) collateral - guarantees to lender
4) conditions - purpose of loan
5) character - general impression
most important of 5 C’s
capacity to repay
common loan restrictions
1) maintain accurate records
2) limit on total debt, dividends, buy/sale of assets
3) financial ratios
main reason why early ventures cant get loans
collateral assets not reliable
percentage of early firms using credit card debt
58% common because easier to get, less restrictions, and pay card w/ another card
SBA
small business association. provides capital and guarantees loans. also skill assistance like management and government contract help
SBA loans
7(a), 504 loan, microloan
7(a) loan
commercial loan up to 2mil for most purposes. repay in 7-10 years. 85% guaranteed by SBA
504 loan
commerical bank and non profit bank. up to 4mil for fixed assets and 2mil for other. SBA guarantees non profit portion
microloan
non profit bank loan. up to 35k for very small firms. SBA provides loan to community organization like CDFI
community development financial institutions (CDFIs)
provide small loans and housing help. focused in disadvantaged areas. usually must be willing to receive skill help too and have social missions
factoring
- selling receivables to a third party at a discount so they have to collect.
- low risk 2-5%
- high risk 10%
“without recourse”
term used in receivables factoring. venture not responsible for no pays, probably pay more
receivables lending
use receivables account as collateral for normal loan
vendor financing
use credit from your suppliers. accounts payable and trade notes.
terms of sale
“2 in 10, net 30” means save 2% if paid in 10 days, total amount due in 30 days
mortgage lending
real property used as collateral. property can be taken in foreclosure
venture leasing
lease stuff like computers to new company at interest. deal is usually sweetened through ownership warrants
EAR formula
effective annual rate
EAR=[1+(quote/m)]^m-1. m is times per year to compound
year SBA created
1953
period rate
how much “interest” you pay for not paying in time for discount.
PR=discount%/(1-disc%)
period=time from discount end to net
implied interest rate
EAR of period rate, can be pretty high
