4381313 etr chapter 7 english

8/14/2019 4381313 Etr Chapter 7 English

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BUSINESS FINANCINGBUSINESS FINANCING

CHAPTER 7


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INTRODUCTION

CAPITAL is the net value of a company that exists in theform of cash, inventories and facilities.

Fixed Capital (Modal Tetap) needed for purchasing oflong term fixed asset

Rolling Capital (Modal Kerja) short term funds forfinancing operational cost

Growing Capital (Modal Pertumbuhan) financing for

product development; increased production, labor andsales; and purchase of equipments


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INTRODUCTION

How much capital is needed?

What form of financing is suitable?

How much ownership and control to be

given away?


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FINANCING METHOD

Loan Financing (Pembiayaan Berbentuk Hutang)

Short Term Loan (Pembiayaan hutang jangka pendek) duration of 12 months and less. In the form of overdrafts,

rolling credits, commercial credits, credit card purchase orcash advance. Used in daily operations for supplies, raw materials, salary

and allowances.

Long Term Loans (Pembiayaan hutang jangkapanjang) - more than 12 months. Used to purchase fixedassets of which can be used as collateral for the said loan


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FINANCING METHOD

Loan Financing (Pembiayaan Berbentuk Hutang)

ADVANTAGE Retain ownership and control of business Freedom on financial decision Creditors do not have any claim on loans after full settlement

DISADVANTAGES On-time payment regardless of companys performance Upon failure to pay: high interest rate, renewed payment term,

lesser credit facility, creditor might claim in full Creditor prefers long existing businesses with good records


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FINANCING METHOD

OVERDRAFT Short term facility by a commercial bank: allows of withdrawal more

than cash available in current account to a pre-agreed limit.

Funds rolling capital for inventories, business credit facility or

operational cost

COLLATERAL (CAGARAN): accepted is in the form of easilyliquidified assets such as deposit certificates, bonds etc.

NO COLLATERAL (TANPA CAGARAN): does not need any formof asset if the client is high integrity, strong financial support andgood business record

GUARANTEE (JAMINAN): personal guarantee, corporateguarantee, debentures or lien


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FINANCING METHOD

OVERDRAFT Interest rate is based on actual usage of facility

Commitment fee is imposed on unused facility

Interest rate is charged on unpaid balance for the day and debitedinto clients account monthly

Interest rate depends on type of client, type of business, form ofcollateral and business trends

Advantages of overdraft: flexible is funds management as it can beused continuously as long as it is well-organised and the business isconducted satisfactorily


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FINANCING METHOD

Rolling Credit (Kredit Pusingan) Short term and used for rolling capital

Does not need a current account with a bank

Based on maturity term

Suitable for a company with good financial status due to financingcost is lower to other type of financing

Can be continuously used as it is a rolling facility


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FINANCING METHOD

Termed Loan (Pinjaman Berjangka) Payback includes interest rate agreed upon during application

Payback done by installment 3 months, 6 months or annually

Depends on reason of loan, payback capability and duration ofpayback

Termed loan is normally given to clients that will receive a summoney in the future e.g. government contract

Interest rate is based on BLR (Base Lending Rate) plus apredetermined margin by the bank on monthly basis


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FINANCING METHOD

Hire Purchase (Sewa Beli) Offered by financial institution to purchase tools, facilities,

machineries and vehicles via installments

Banks will buy the goods and rent it out to clients

Minimun 10% deposit on product cost, remaining balance to beborne by the bank

Installment to the bank till the end of duration agreed

Ownership is with the bank till full settlement of which the ownershipis the clients


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FINANCING METHODMortgage (Pajakan) A contract of which the bank buy the fixed asset and rent it to the client

Client till pay in installment for a certain period

Client has full right to usage of asset during the term

Ownership is of the bank

Usage of asset without purchasing

Increased of cash flow without spending money on asset

Tax deductible on rental of equipment


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FINANCING METHOD

Operational Mortgage (Pajakan Operasi) BANK will provide asset to the client complete with technical know-

how and maintenance of asset

CLIENT agrees on a predetermined rental rate for the duration

The duration of mortgage is normally shorter than the economiclifespan of the asset. Upon mortgage completion, it will be returnedto the bank and mortgaged to another party, to the same client orsold of as a used asset.

E.g. : computers and photocopy machines


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FINANCING METHODFinancial Mortgage (Pajakan Kewangan)

Clients determine what is needed and apply to the bank for purchase

The asset is mortgage to the client via a predetermined installment rateand period. Maintenance and insurance of asset to be borne by client

Mortgage contract is for the duration of economic lifespan of asset andcannot be ended before the term

Amount of installment includes cost of asset, deposits, remaining valueand interest rate. Payback is higher than actual cost of product.

Upon mortgage completion, asset can be returned to the bank, boughtat market price or sold off as a used asset to another party.


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FINANCING METHOD

Factoring (Pemfaktoran) Financing for business offering 30 days to 120 days credit

Bank buys over invoice and manage the collection

Money generated through invoice sales

Helps cash flow and rduce expenses in managing sales account

Recursion Factoring (Pemfaktoran rekursa) client must do the collection. Clientmust pay balance in case of collection failure.

Non Recursion Factoring (Pemfaktoran itu tanpa rekursa) client sell off rights to

debt and uncollected accounts. Client has no obligation to the bank should thecollection fail.


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Is the capital needed? Can the company manage the existing cashflow efficiently?

What is the loan for? How soon is the loan needed? Desperation for loan might not allow

for requirement fulfillment.

Does he has a good personal credit record? Is the business capable of loan payback? Does the business has a positive net returns? Does the business has any outstanding loans or debts? Does the entrepreneur has enough personal capital for the

business?

Does the entrepreneur has any collateral? Is the entrepreneur willing to give personal guarantee to the

business loan? Does the business has a good management team?

APPLYING FOR A LOAN


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Summary (Ringkasan)

It should be clear, compact and accurate.

Explain is brief how the loan will beutilized, how it will be repaid and how the

loan will benefit the company.

Also includes the interesting and uniquecharacteristics of the business.

APPLYING FOR A LOAN


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Management Profile (Profil Pengurusan)

Who plays the vital role in the

management?

Background of academic qualifications

and job experience are important of each

team members.

APPLYING FOR A LOAN


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Area of Business (Keterangan Perniagaan)

Business explanation has to be solid.

Includes summary about history; past and

current activities.

Show clearly that the entrepreneur fully

understand the nature of business involved, its

market trend and risks incurred. Explain briefly about the product and/or offered.

APPLYING FOR A LOAN


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Forecast (Unjuran)

Show a 3-year revenue and cash flow

forecast.

The forecast has to be clear and realistic.

Contingencies must be included IF the

assumptions made are not met.

APPLYING FOR A LOAN


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Financial Statement (Penyata Kewangan)

Includes business and personal financial

statement.

Ensure that the entrepreneur fully

understand the implications of what was

being presented in the financial statement.

APPLYING FOR A LOAN


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Loan Motive (Tujuan Pinjaman)

Prepare a detail statement on how theloan will be used.

Make sure the entrepreneur understandthe type of loan applied for.

NEVER FORGET to include the loan and

its payback period (including interestrates) in the forecasted cash flow andincome statement.

APPLYING FOR A LOAN


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APPLYING FOR A LOAN

Amount of Loan (Jumlah)

Explain how much loan is needed and

how much is the personal capital input.

Amount needed is based on the usage of

loan and the entrepreneurs capacity of

payback.


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APPLYING FOR A LOAN

Payback Plan (Rancangan Bayaran Balik)

There are a few assumptions to be made

on the payback plan:

Explain how the payback will be made;

installments by monthly, quarterly, half

yearly or annually.

It should explain the entreprenuers

capacity to payback in the future.


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WHAT BANKERS LOOK FOR IN AN

ENTREPRENEUR

CAPITAL (MODAL) is the financialstrength of an entrepreneur. This financialcapacity is determined by the

entrepreneurs equity share in thebusiness.

COLLATERAL (CAGARAN) is used as asecurity or insurance should theentrepreneur fails in the loan repayment.


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WHAT BANKERS LOOK FOR IN AN

ENTREPRENEUR

ENVIRONMENT (KEADAAN) refers to

the environment of the business core.

Environment includes all factors that could

affect the capability of an entrepreneur torepay the loan which is sometimes cannot

be controlled by both banker and

entrepreneur.


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Equity Financing

Equity Financing does not include the

responsibility to pay back any form of funds

forwarded.

Equity Financing offers the investor a form

of ownership in the business.


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Equity Financing

ADVANTAGES Entrepreneur does not have to payback the

money invested in the company.

A business capable of attracting outsideinvestors shows that the business has a goodgrowth potential and profitable future.

An investor dedicated to the success of thecompany is a good source of consultation andnetworks.


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Equity Financing

DISADVANTAGES The entrepreneur does not have total control of the

company. It might be more difficult to manage in thefuture.

The investors do not always agree to the plans of thebusiness growth. This is because the investors are alsopart of the shareholders and that their views might beagainst the views of the entrepreneurs.

Equity financing is much more complex and sometimesrequires a third party intermediary that could includelawyers and accountants.


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Sources of Equity Financing

Owners Capital (Modal pemilik) is the

most common source of fund for a new

business. It could either be a personal

saving or sale of personal asset.


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Family and Friends (Keluarga dan

kenalan) is also considered an important

source of equity financing. It is normally a

source for financing new business andeasily attainable for small time

entrepreneurs.


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Informal Investor (Pelabur tak formal)

also known as angels consists of

financially strong individuals that invests

their money for start-up projects or newbusiness ventures.


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Venture Capital (Modal teroka) is funds

by companies or professional bodies to

invest with the project owner or new

growing business.


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Venture Capital

Ease of Exit (Mudah Keluar): Venture

Capitalist will only invest in projects that

enables them to leave easily through

profitable sale in the future.


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Stages of Equity Financing

Seed (Benih)

Financing for research and productdevelopment.

Hard to get financing as businesses mustprove that the product has marketpotential.

Normally, a small fund is needed forresearch and to prove the viability of theconcept.


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Start-up (Permulaan)

Funds for companies to develop and

market the product.

The company is in the midst of organizing

process or has been in the market for a

short period of time but did not make any

form of sale as yet.

Hard to obtain funds.


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Development (Pembangunan)Funds for development and growth of companies

with previous track records. Venture capitalistplays most important role at this stage which can

be divided into:

First Stage: Funds needed to increaseproduction capacity

Second Stage: Funds needed to increaseproduction capacity and marketing.


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Mezzanine (Mezanin)

Funds needed for public offering. The

company is already making profits but

needed extra financing to increase

production capacity; factory or plant

Funds needed to reduce financing cost and

to attract potential investors towards share

value offered in the future.


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Management Buy Out (Belian Oleh

Pengurusan)

Comes in forms of loan or equity

investment that enables an existing

management to buy over an existing

business or part of it from an existing

owner.


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CONCLUSION

An entrepreneur must understand the form, type and sources forbusiness financing. He/she must understand the evaluationcriteria to get a fund.

Loan Financing

Equity Financing

Criteria seached for by a venture capitalist is a strongmanagement team, product uniqueness, market opportunityand growth potential.

Stages to Equity Financing starts with seed, start-up,development, mezzanine and management buy out.

4381313 etr chapter 7 english

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