financing

Question 1

what are the needs for funding (6)

Answer 1

purchase assets
marketing
inventory
hire staff
operational costs
cover funding costs

Question 2

what are the advantages of own capital (3)

Answer 2

retain full control of own business
no application process
prudent use of funding

Question 3

disadvantages of own capital - 3

Answer 3

risk of losing inventory
one of the most expensive costs of funding in terms of risk
reduced diversification (all eggs in one basket)

Question 4

3 advantages of preference shares

Answer 4

• retain control of your business
• reduces maturity risk
• less expensive than equity investments

Question 5

4 disadvantages of preference shares

Answer 5

• upfront setup costs
• setup time takes longer than a loan
• ongoing program maintenance
• smaller market than listed bonds and equity investments

Question 6

4 advantages of bank/business loans

Answer 6

• access
• retain full equity in your business
• low int rates and access to large amounts of funding (4 c’s)
• no interference from the bank

Question 7

3 disadvantages of bank/business loans

Answer 7

• strict eligibility criteria (4 c’s)
• potentially a lengthy application process
• secured loans carry the risk of losing your business (4 C’s)

Question 8

2 advantages of development finance loans

Answer 8

• retain full control of your business
• favorable int rates

Question 9

4 disadvantages of development finance loans

Answer 9

• time to receive funding can be long
• possible restrictive covenants
• ongoing reporting requirements can be arduous
• limited scope of what kinds of operations will qualify

Question 10

3 advantages of listed debts

Answer 10

• retain full control of your business
• access to a large pool of investors
• least expensive form of debt funding and less expensive than equity funding

Question 11

4 disadvantages of listed debts

Answer 11

• upfront setup costs
• setup time takes longer than a loan
• maintenance of program
• can include restrictive covenants (4 c’s)

Question 12

what are the 4 ownership considerations

Answer 12

ownership of business
control of business
cost of funding
timing and process involved in attaining funding

Question 13

the 4 funder considerations with explanations

Answer 13

1. capacity - ability to make debt payments on time
2. collateral - quality and value of assets supporting indebtedness
3. covenants - terms and conditions
4. character - quality of management

Question 14

what are the 4 c’s

Answer 14

customer
cost
convenience
communication