DEFNITIONS
Funding
Funding also termed as “Financing Decision”
and it important function performing by financial
manager in Commercial & Non- commercial Enterprises.
Broadly, the Financial in charge should decide
when, where and how to acquire funds to meet the
Firm’s investment needs.
Current Source of Funds
There are several of sources & types of Funds
open in the market and it is the wisdom for the
finance manger to seek funds appropriately as
per the requirements. Current sources of funding
are from Traditional ways, which can be circulated
and re-paid within the accounting period OR Operating
cycle of Business, and it can be very easily converted
in to cash or equivalent.
Non-Current Source of Funds
Where as Non- Current sources are for longer
period i.e. more than one year. Normally Long
Term Sources are used for Capital expenditure
like Land, building and Machineries for the enterprises.
The logic behind the categorization is Return
on investment. When the expected returns starts
immediately, Current sources are tapped otherwise
non- current sources are tapped. Hence it entirely
depends on type of investment proposed by the
enterprise.
Source : Robichek A., “Financial Reasearch
and
Management Decisions , John Wiley, 1967 p.6
America’s Business funding Dictionary
“Business fund.com
Types – Current Sources
Working Capital
Working Capital Loans can be obtained and used
for most business purposes including:
• Construction, renovation or leasehold
improvements.
• To purchase furniture, fixtures, machinery,
or equipment.
• For the flooring of inventory and for
working capital (payroll).
Capital Type Capital Type Definition
Business micro Loan These are working capital
loans typically funded from $5,000 to $35,000
and used for any business purpose.
Credit card Receipts & Advances A cash advance
loan up to a $100,000 that is secured against
your regular occurring monthly merchant credit
receipts. The loan is paid back via automatic
deduction from future credit card transactions.
Accounts Receivables – Sell Your account
receivables are purchased at a small discount
and you get cash now.
Business Credit Cards These loans are unsecured
and usually do not exceed $25,000. Loan limits
are based on your personal credit score and not
your time in business.
Sale & Lease Back Sale of an asset for cash,
with a contract to lease the asset back from the
funding source purchasing the asset. Sales tax
can be an issue here with this type of funding
Commercial Finance
Commercial Finance includes:
• Asset based loans, invoice factoring,
purchase order advances.
• Credit card receipt advances, working
capital credit lines.
• Expansion, franchise, inventory, import/export
financing.
Capital Type Capital Type Definition
Accounts Receivables - Factoring Account receivable
factoring serves as collateral for short term
working capital loans that you can obtain fast
and cost effectively.
Import & Export Loans to promote the shipping
or receiving of products or materials. Based on
existing market, demand or orders.
Inventory Loan A loan typically made as part of
a relationship where the lender will also provide
retail financing for the product.
Purchase Order Financing Loans on the written
order to purchase goods at a stipulated price
with an agreed to delivery date. Credit rating
of order is key.
Secured Credit
Line A pre-arranged amount of credit based upon
existing inventory, A/R and PO's.
Merchant Account Advance Up to a $100,000 advance
against regular occurring monthly merchant credit
receipts.
Non-Current Sources of Funds
Equipment Finance
Finance the equipment you need rather than purchasing
outright:
Provides the equipment, software, and furniture
your business needs now!
Does not tie up your cash, receivables, credit
cards, or bank lines (lease)
Reduces the amount of cash you need and can be
expensed for taxes
Capital Type Capital Type Definition
Equipment Loan Making of a loan using the equipment
as collateral. Good operating history, credit
rating, debt ratios are the keys.
Equipment Leasing Contract for a fixed period
of time in exchange for payments, usually in the
form of rent for equipment. Typically lower credit
requirements.
Municipal Equipment Leasing
A lease transaction with any government agency
(i.e. Federal, State, County, City etc.).
Equipment Sale and Lease Back Sale of an asset
for cash, with a contract to lease the asset back
from the funding source purchasing the asset.
Sales tax an issue here.
Equity Investments
Equity Investments are for companies with:
More than $25 million in gross revenue potential
Large National or International market potential
Management teams with successful track records
Capital Type Capital Type Definition
Equity Loan
Offer of an ownership position to induce the loan
or can be a note that has an option to convert
from debt to equity.
Merger and Acquisition Funding The combination
of two companies. If one company survives, it
is a merger. If both survive, it is an acquisition.
Mezzanine Funding Company's progress makes positioning
for an Initial Public Offering viable. Venture
funds are used to support the IPO.
Seed Funding Earliest stage of business, typically
no operating history. Investment is based on a
business plan, the management group backgrounds
along with the market and financial projections.
Commercial Mortgages
Commercial mortgages and real estate loan types
Shopping centers, industrial buildings, office
buildings
golf courses, resorts, hotels, parking garages,
car washes
Construction loans, ground leases, seconds, wraparounds,
etc.
Capital Type Capital Type Definition
Acquisition and Development Raw land infrastructure
development (streets, utilities, etc.) Construction
– Mini project Construction with 3 to 5
year loan, usually on income property.Construction
Loan Construction with pre-arranged takeout loan
in place. Joint Venture A financial partner in
the development of real estate.
Real Estate sale and Leaseback Lender purchases
land and leases back to borrower (generally developer)
for a fixed rent plus other considerations. Mortgages
are issued on leasehold at market rates. Usually,
produces more dollars than a mortgage.
Venture capital
Like finance from Business angels, Venture Capital
is a way for a growing business to obtain finance
in return for a portion of equity or share capital.
Venture capitalists are unlikely to invest anything
less than £500,000. Raising millions is
sometimes simpler than thousands. Venture Capital
firms also demand high returns on their investments
- a compound return of 30% and above is not unusual.
Source:
Business Link York and North Yorkshire
Information Centre
Arabesque House
Monks Cross Drive
Huntington
YORK
YO32 9WU
REVIEW OF CENTEX CORPORATION FINANCIALS
2002
Current Sourcing
Projects (Event)
Short Term
Bank loan ($ in Millo)
Working Capital for Construction
Products 18,630
(CENTEX borrows on a short-term basis from banks
under uncommitted lines and bears weighted average
interest rates 3.6% for the year 2002 and 6.9%
for the year 2001)
Non-current Sourcing
Medium Term Note 2.45% Long Term Notes 6.40%
Capital Expenditure 418,000 962,892
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