Financing source decisions

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Financing source decisions

  1. 1. DIFFERENT FINANCING OPTIONS
  2. 2. QUESTIONS TO ASK WHEN LOOKING FOR FINANCING WHAT AMOUNT DO I NEED?  HOW DO I RAISE THE FUND? IS IT THROUGH EQUITY OR DEBT?  WHAT INFORMATION DO I NEED TO PROVIDE THE LENDER/INVESTOR  WHAT ARE THE REPAYMENT TERMS? DO I HAVE TO PAY INTEREST? IF SO, WILL IT VARY OVER TIME OR FIXED?  HOW LONG WILL IT TAKE TO ACQUIRE THE FUNDS?
  3. 3. QUESTIONS LENDERS WILL ASK BEFORE TAKING DECISION  INFORMATION TO DERTERMINE HOW THE BUSINESS IS MANAGED  THE SIZE OF THE LOAN AS COMPARED TO HOW MUCH YOU HAVE  COMPANY’S ABILITY TO LIQUIDATE ITS CURRENT ASSETS
  4. 4. FINANCING METHODS  SHORT TERM FINANCING  LONG TERM FINANCING
  5. 5. Long Term Sources of Finance  Domestic  Foreign Sources of Finance Capital
  6. 6. Domestic Sources of Finance  Debt  Equity – Share Capital  Retained earnings Share Capital : Equity Share Capital Preference Share Capital Right Issue Warrants
  7. 7. Debt Financing  Debt securities: - Secured & unsecured debentures - Convertible & non convertible debentures - Zero interest fully convertible debentures - Secured premium notes - Deep discount bonds  Loan from financial Institutions  Public Deposits  Term loans from banks
  8. 8. Debentures Kinds Of Debentures        Bearer Debentures Registered Debentures Perpetual Or Irredeemable Debentures Redeemable Debentures Debentures issued as Collateral Security for a Loan Naked Debentures Secured Debentures
  9. 9.  Advantages  Disadvantages  Debenture vs. Share Capital  Methods of Redemption of Debentures - Redemption of Debentures on a Fixed Date - Redemption of Debentures by periodical drawings  Sinking Fund  Debenture Redemption Reserve  Convertible Debentures - Valuation of Convertibles - Institutional Conversion of Debentures / Loan into equity
  10. 10. New Debt Instruments  Zero Interest Bond  Equity warrants with NCDs  Secured premium Notes  Deep discount Bonds  Zero Coupon Convertible Notes  Debt for Equity swap  Multi-option Secured Redeemable convertible Debentures  Callable Bond  Option Tender Bonds  Guaranteed Debentures
  11. 11. continued  Subordinated Debentures  Floating Rate Bonds  Junk Bonds  Indexed Bonds  Stepped-up Debentures  Inflation – Adjusted Bonds  Coupon Stripping Asset Securitization
  12. 12. TERM LOANS  Use to finance your permanent working capital, purchase of new equipment, construction of buildings, business expansion, refinance existing debt and business acquisitions.  Term loans are repaid from the long-term earnings of the business.  Therefore, projected profitability and cash flow from operations are two key factors lenders consider when making term loans.  Generally, interest rates on long- term loans are higher than for short-term loans.

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