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What are the possible sources of funds for a small business are (i.e. small sari-sari store).
Equity Infusion from investors/business partners
Start-up capital from owner
Loan from a bank
Loan from other financial institutions, etc.
Loan from family members/friends, etc.
Debt Financing - borrowing money from lenders and not giving up ownership.
Equity Financing - the method of raising capital by selling company stock to investors (stockholders)
in exchange of ownership interests in the company.
The 5C’s of Credit - the institution’s primary consideration in approving loan applications:
• Character –the willingness of the borrower to repay the loan
• Capacity – a customer’s ability to generate cash flows
• Collateral – security pledged for payment of the loan
• Capital – a customer’s financial resources
• Condition – current economic or business conditions
EXERCISE:
Mr. Joe Salazar applied for a PHP1.5 million loan in behalf of his business, “Joe’s Restaurant”, for
additional capital in 2015. He is the Chairman of the Board of Joe’s Restaurant. In their meeting, the
Board decided to open an additional branch for the restaurant. Joe’s Restaurant currently has 3
branches in Metro Manila and would like to open up a small branch in Quezon City. Joe’s Restaurant
has been in the business for 12 fruitful years and has been a previous borrower of the bank. The
company had previous late payments before but the reasons are usually justifiable, and the balance of
the loan, along with any penalties, if any, is paid. The three branches earn a net income of PHP900,000/
year. The lot where the main restaurant is located is pledged as collateral to the bank. This property is
valued at PHP2 million. Shown below is an excerpt from Joe’s Restaurant’s 2014 consolidated audited
financial statements.