BUSINESS FINANCING AND DEVELOPING

FINANCIAL LITERECY

Business finance refers to capital that supports the creation, growth, and sustainability of entrepreneurs, small holders, and small enterprises who were previously excluded from the financial markets.

BUSINESS FINANCE

Refers to the means by which an aspiring or current business owner obtains money to start a new small business, purchase an existing small business or bring money into an existing small business to finance current or future business activity.Cole (2013) https://www.sba.gov/sites/default/files/files/rs399tot.pdf

BUSINESS FINANCING

The following are the basic business financing: 1. Personal Savings 2. Friends & Family 3. Equity (Angel Investors) 4. Bank Loand (Debt Financing) 5. Leasing and hire purchase6. Grands (Sure-P, You Win) etc.7. Rollover

FORMS OF BUSINESS FINANCING

Money that an

individual has put away for non-immediate use.

Excess money after necessity expenditure, which is usually have being kept for feature use.

PERSONAL SAVING

FRIEND AND FAMILY

This kind of business finance comes from members of the family whereas they contribute money to support a family member to establish a business.

Also friends contributes money for their friend to establish a business.

This kind of financing could be free, or payable usually have no interest.

They always concern with the wellbeing of their members.

Equity Financing involves giving up a portion of the ownership of your business in exchange for money received from equity investors.

EQUITY (ANGEL INVESTORS)

EQUITY

INVESTORS Visit www.youtube.com

and search for Dragons’ Den

Bank loan sometimes refers to as “Debt

Financing” is money that you will pay back, usually with interest, over a set time period and in accordance with specific terms.

Bank Loans could be: Short Term Loan (with one year) Medium Term Loan (with one – three years) Long Term Loan (More than three years)

BANK LOAN

PROSPECT AND CONSEQUENCES DEBT AND EQUITY FINANCING

Debt Financing / Bank Loan Equity Financing Prospects

Typically easier to get than equity financing

Investors can provide expertise and key contacts

Wide range of options available (Bank loans, line of cards, family and friends loan etc)

Usually available in larger amounts than debt financing

Allows you to retain control of your business

If business fails, you usually don’t have to pay back the money

   Consequence

Collateral is sometimes required Investors may demand a say in running your business

Amount you can borrow is usually limited

Requires additional time to manage investor expectations

If business fails, you still may have to pay back the money

You forfeit sole ownership of the business and its profits

Advani (2003) http://www.score-suncoast.org/Publications/FinancingGuide.pdf.

 

Loan and Equity Financial Requirements

http://webcache.googleusercontent.com/search?q=cache:bxCe0TTQL0cJ:www.score-suncoast.org/Publications/FinancingGuide.pdf+&cd=7&hl=en&ct=clnk&gl=ng

Lenders need to feel comfortable that

a borrower has the necessary background and skill set to effectively operate the small business.

A. Management Experience & Expertise.

Lenders usually require start-up businesses to have a business plan that includes income and expense projections for the first three years of operation.

B. Detailed Business Plan.

To reduce their risk in case of default, lenders often require the borrower to secure the loan with collateral. This is usually hard goods such as office equipment, vehicles, etc., but sometimes it can be against accounts receivables depending on the business' current cash flow.

D. Collateral. 

Lenders want to know how much money the borrower has at risk. For start-up businesses, commercial lenders typically require at least a third of the total project costs to be covered by the borrower.

C. Cash Injection.

In addition to your experience, lenders also try to understand who you are as a person. As a result, some lenders will conduct background checks that can include looking for any previous litigation or bankruptcy information.

E. Personal Character. 

Lenders like to see a good credit history. If there are any credit issues, an explanation will be required. Different lenders have different levels of tolerance when it comes to credit issues

F. Credit History. 

Lenders like to see a list of personal assets and personal liabilities. Do not include debt paid by your business.Include other sources of personal income

G. Personal Financial Statements. 

Loan granted to finance the acquisition of an

asset e.g., motor vehicles, generating sets etc.

Leasing refers to a mode of financing which allows the use of equipment in return for agreed lease payments

Lease Financing

http://www.wemabank.com/corporate/loans-financing/finance-lease-facility/

A system by which a buyer pays for a thing in

regular installments while enjoying the use of it.

A method of buying goods through making installment payments over time. The term hire purchase originated in the U.K., and is similar to what are called "rent-to-own" arrangements in the United States. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid

Hire Purchases

Read more: Hire Purchase Definition | Investopedia http://www.investopedia.com/terms/h/hire-purchase.asp#ixzz3m7lJR7c4

This kind of finance occur when government want

to encourage people to engage in any kind of enterprises then, it will establish a scheme which will facilitates, train and finance the participants to establish such enterprises e.g.

U win Sure-p CBN

GOVERNMENT GRANDS

https://www.youwin.org.ng/youwin_success_story

FINANCIAL

MANAGEMENT & LITERACY

Financial literacy is the ability to understand

how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others.

More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources

FINANCIAL LITERACY

Become familiar with your household finances Set a financial goal.

Develop a budget and stick to it. Keep a record of your monthly spending for several months.

Include groceries, gasoline, clothing, lunches and dinners out, dry cleaning, school expenses, etc. You want to be sure that your record is an accurate picture of how you spend your money.

Write a spending plan using your spending record as a guide, eliminating unnecessary expenses, and decreasing those, which may be too high.

Revise your budget as necessary. When monthly bills change or are eliminated, your financial goals become different, or your income increases or decreases, a change in the budget is necessary. Your budget must be flexible in order for you to stick with it.

FINANCIAL MANAGEMENT

Discuss finances openly and honestly

with your family and stay involved.

Learn the difference between good debt and bad debt.

Avoid Living on credit, Not setting financial goals is dangerous. Calling luxuries items necessities

Learn more on your

personal finance

Learn how to identify reliable and unreliable sources of information

Pass on the knowledge

http://www.wikihow.com/Develop-Financial-Literacy

ACTIVITY V(Q1) Discuss the following a. Rollover andb. Plough-back as sources of business finances