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M5 L3 Loans and Credit
 

M5 L3 Loans and Credit

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    M5 L3 Loans and Credit M5 L3 Loans and Credit Presentation Transcript

    • Loans and Credit For Small Business
    • Process for Getting a Loan
      • Select the bank carefully.
      • Prepare financial statements and a business plan.
      • Make an appointment.
      • Prepare to answer questions about your business plan and/or financial statements .
    • Types of Loans Available
      • Secured Loans
      • Unsecured Loans
    • Secured Loans
      • A loan that is guaranteed by collateral that has a value worth the amount of the loan. Should the borrower not pay the loan, the item given as collateral will be taken as payment.
    • Secured Loans Available
      • Short-Term Loan
      • Must be paid back within a year; may be used for the specific purpose of dealing with a cash flow problem. Prepare financial statements and a business plan.
    • Secured Loans Available
      • Long-Term Loan
      • Repayable over a period longer than one year; may be used to make improvements that will help increase profits .
    • Secured Loans Available
      • Agreements made by a bank to lend money at a stated interest rate whenever the owner needs it. 
      • A fee is charged for the privilege whether the money is used or not, and interest is charged on any money that is used.
      Line of Credit
    • Entrepreneurial Characteristics Needed to Obtain Financing (6 C’s of Credit)
      • Character
      • Capacity
      • Capital
      • Collateral
      • Conditions
      • Coverage
      • 1. Character
      • The bank needs to believe in the character of the entrepreneur and the people with whom he or she is associated, including the management team of the business.
        • Responsibility shown by paying bills in the past
        • Good credit rating
        • Good reputation
      6 C's of Credit
      • 2. Capacity
        • Evidence of the ability to repay the debt
        • Legally eligible to enter into contracts
      6 C's of Credit
      • 3. Capital
      • The bank needs to believe in the character of the entrepreneur and the people with whom he or she is associated, including the management team of the business.
        • Demonstrated ability and willingness to invest personally in the business venture
        • Evidence of a good financial plan with little outstanding personal debt
      6 C's of Credit
    • 4. Collateral Something of value that the lender can claim if the debt is not repaid . 6 C's of Credit A car can be use as collateral A person with a good credit rating can co-sign with you. A home if you own it.
      • 5. Conditions
      • The bank will consider all of the environmental conditions such as competition, growth, location, and economic outlook in which the business will operate.
      6 C's of Credit
    • 6. Coverage The bank will want to know what kind of insurance coverage the entrepreneur has. 6 C's of Credit
    • Factors to Consider When Choosing a Financial Plan Risk Control Availability
      • 1. Risk
        • There is a greater risk of loss with debt funds since the entrepreneur must repay the loan in accordance with the terms or risk losing the business, collateral, or even personal possessions.
        • There is less risk for the entrepreneur with equity funding since no repayment is required.
      Factors to Consider When Choosing a Financial Plan
      • 2. Control
        • Entrepreneurs often lose control of decision-making power with the use of equity funds.
        • Debt funds do not involve this loss of control.
      Factors to Consider When Choosing a Financial Plan
      • 3. Availability of Funding
        • The entrepreneur's credit history or earning potential can help or might eliminate him or her from securing a debt loan.
        • Equity sources might not be readily available.
      Factors to Consider When Choosing a Financial Plan