school of telcommunication different financing options mustapha ojo
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SCHOOL OF TELCOMMUNICATION
DIFFERENT FINANCING OPTIONSDIFFERENT FINANCING OPTIONS
Mustapha Ojo
SCHOOL OF TELCOMMUNICATION
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?
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
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
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
FINANCING METHODS
• SHORT TERM FINANCING• LONG TERM FINANCING
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
SHORT TERM LOANS
• Use for seasonal build-ups of inventory and receivables, as well as to take advantage of supplier discounts or pay lump-sum expenses, such as taxes or insurance.
• Repayment is usually in a lump sum with interest at maturity
• Short-term loans are generally made on a secured (or collateralized) basis and are for a term of a year or less.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
CREDIT LINES
• The lender, usually a bank, supplies a business with funds intended to fill temporary shortages in cash that are brought about by timing differences between cash outlays and collections.
• They are typically used to finance inventories, accounts receivable or for project or contract related work.
• A track record is often needed before approving a credit line and collateral may be required.
• Banks will generally require maintenance of certain balances of funds in your commercial bank account.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
ASSET - BASED FINANCING
• A lender accepts as collateral the assets of a company in exchange for a loan.
• The loan is used as a source of funds for working capital needs.
• Most asset based loans are financed against accounts receivable since they self-liquidate in a short period of time by themselves
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
FACTORING
• Similar to accounts receivable financing with one notable exception.
• Factors actually buy your receivables and rely on their own credit and collection expertise. Essentially, your customers
• become their customers. • Payments are made directly to the factor by your buyer.• Factoring is generally used by firms unable to obtain
bank financing. As a result, the cost of factoring is usually higher than other forms of short-term financing.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
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.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
LEASING
• This has become a significant source of intermediate-term financing for small companies in recent years.
• Any type of fixed asset may be financed through a leasing arrangement.
• Leasing can be accomplished through a leasing company, commercial bank, the equipment owner or a commercial finance company.
• Leasing offers a great deal of flexibility as it can be used to finance even small amounts.
• The leasing company will be particularly interested in the cash flow of your company.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
VENTURE CAPITAL
• One problem many new businesses face is raising sufficient capital.
• A business in its primary phase will also face a difficult challenge getting a bank loan.
• Venture capital firms offer capital in exchange for equity in a company.
• This type of financing is ideal for new businesses since venture capital firms focus mainly on the future prospects of a company when banks use past performance as a primary criteria.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
LETTER OF CREDIT
• A letter of credit is a guarantee from a bank that a specific obligation will be honored by the bank if the borrower fails to pay.
• Letters of credit can be useful when dealing with new vendors who may not be assured of a company's credit worthiness.
• The bank would then offer a letter of credit as an assurance to the vendor of payment. Although no funds are paid by the bank.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
ANGEL INVESTING
• Angel investor or Business angel is an affluent individual who provides capital for a start – up business usually in exchange for convertible debt or ownership equity
• A small but increasing number of angel investors are organizing themselves into angel networks or angel groups to share research and pool their investment capital.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
PRIVATE EQUITY FUNDS
• A fund that invests in companies and/or entire business units with the intention of obtaining a controlling interest (usually by becoming a majority shareholder, sometimes by becoming the largest plurality shareholder) so as to be in the position of restructuring the target company's reserve capital, management, and organizational infrastructure.
04/19/23 Mustapha Olalekan Ojo
SCHOOL OF TELCOMMUNICATION
INTERACTIVE SESSIONS