Establishing Bank Credit and Trade Credit

III. Identify five sources of short-term financing for businesses.

IV. Distinguish between the various sources of long-term financing and the financial risks involved with each type.

V. Write the summary of the text.

VI. Check the summary of the text written by one of the students and if it is necessary comment on the mistakes.

VII. If you were the financial manager of a large firm, what type(s) of short-term funding would you use most? Least? Why?

VIII. How would you decide on the best mix of debt, equity, and preferred stock for a company?

IX. How might you use financial management in your personal life?

X. Are you a proponent or critic of foreign investment (venture capital) in Ukrainian firms? Defend your position.

XI. Choose a business you would like to start. What short-term and long-term sources of funding would be needed? Why? Discuss what business needs are served by each source of funding?

XII. Interview the owner of a small local business. Identify the types of short-term and long-term funding used by the firm. Determine the reasons behind these financial management decisions.

Text B: Financial Management for Small Businesses

New business failures are often caused by inadequate funding. One study of nearly 3,000 new companies found the survival rate to be 84 percent for new businesses. Those with lower initial funding have a lower survival rate. Entrepreneurs often underestimate the value of establishing bank credit as a source of funds and do not use trade credit effectively. They often do not consider venture capital as a source of funding, and they are notorious for not planning their cash flow requirements properly.

Obtaining credit begins with choosing a bank that can support the small firm's financial needs. Banks differ greatly in their willingness to assume risk, ability to give professional advice, loyalty to customers, and maximum size of loans offered. Some have liberal credit policies and offer financial analysis, cash flow planning, and suggestions based on their experiences with other local small businesses. Some provide loans to small businesses in bad times and work to keep them going. But some do not.

Credit seekers must be prepared to show they are worthy of the bank's help. A sound financial plan, a good credit history, and proven capability on the part of the entrepreneur can all convince bankers and other potential financiers that the business can succeed.

Once a line of credit is obtained, the small business can attempt to secure more liberal credit policies from other businesses. Sometimes suppliers will give customers longer credit periods, such as 45 or 60 days rather than 30 days. Such liberal trade credit terms with suppliers let the firm increase its short-term funds and avoid additional borrowing from banks.

Дата добавления: 2015-01-03