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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Sources of Equity Financing
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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Sources of Equity Financing
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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Sources of Equity Financing
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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Sources of Equity Financing
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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Stages of Equity Financing
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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Stages of Equity Financing
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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Stages of Equity Financing
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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Stages of Equity Financing
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.
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