PUTTING THE BUSINESS PLAN TO WORK: SOURCES OF FUND

• Capital requirements refers to the amount of money needed by a business in order to achieve its goals.
• According to Asor (2009), capital requirements also refers to non-monetary requirements such as ideas which are considered by entrepreneurs as more important than money.
• Fixed Capital - refers to the money needed to purchase fixed assets or capital goods.
• Working Capital - refers to the fund needed to finance the daily operations of the business
• Growth Capital - refers to the fund needed in expanding, diversifying or changing the directions of the business.
• Informal - the safest way to raise capital for funding a business that is by investing the money that comes from your own pocket.
• Informal - This may be in the form of savings or proceeds from sales of personal belongings, as well as borrowing money from close relatives and friends can also be viable solution to financing your start-up capital.
• Formal - are from the legal entities, institutions, or establishment.
• External Sources of Capital

  Pawnshops

  Credit Cooperatives

  Money Lenders

  Lending Investors

  Formal Sources of Credit
• Short Term - These are loans that are basically payable in one year or less. These are normally self-liquidating, may come in the form of revolving credit line.
• Intermediate Loans - These loans are repayable in one to three years and requires collateral securities and is paid back in installments over the lie of the loan agreement.
• Long-term Loan - These loans are extended only to enterprises assured to exist over the long-term period of the loans. These types of loans a repayable up to 10 years.
• Types of Credit Extended by Formal Lending Institutions

  Short Term

  Intermediate Loans

  Long-term Loan
• Mortage - pledging a designated property as security or collateral for the loan.
• Bonds - requires approval from SEC or other legal entities, done by issuing bonds to lenders in the form of a fixed amount of interest to the bondholders upon maturity or call by its holders.
• Long-term Commercial Papers (LCP) - carries a fixed return promised by the issuer regardless of the operational outcome of the business of the issuer.
• Forms of Long-term Loans

  Mortgage

  Bonds

  Long-term Commercial Papers (LCP)
• Sources of Short Term Loans

  1. Commercial banks 
  2. Merchandise suppliers 
  3. Credit card companies 
  4. Capital equipment suppliers 
  5. Leasing companies
  6. Receivable factors 
  7. Deferral of payables in general 
• 5C's of Credit

  Collateral

  Capacity

  Character

  Contract

  Conditions
• Collateral - refers to the fixed assets or real properties that serve as the borrowers guarantee to the creditors, such that in case the borrower fails to repay the loan, the collateral may be seized by the creditor.
• Capacity - refers to the ability of the borrower to repay the loan, This may be determined by the value of the business, the borrower's work, real property value and others.
• Character - refers to the personal standing. Of the borrower in his community, as well as his own personal credibility.
• Contract - an agreement which defines the obligations of parties.
• Conditions - refers to the terms and conditions set forth in t the contract or agreement in terms of the amount, mode of payment, interest rates, penalties, and sanctions.