. Sources of Financing for New Small Firms
The capital of a business consists of those funds used to start and run the business. The funds may be either the owner's (equity capital1) or creditor's (debt capital2). Capital is also classified, depending on its use, as fixed or working.
Fixed Capital3 refers to items bought once and used for a long period of time. These items include real estate, fixtures, and equipment.
Working capital refers to the funds used to keep a business working or operating. It pays for merchandise, inventory, and operating expenses such as rent, utilities (light and heat), taxes, and wages. Cash on hand and accounts receivable4 are also considered working capital. Therefore, working capital is cash, or anything that can be easily and quickly turned into cash.
No firm should ever be started without a clear and positive understanding of where its total capital needs are coming from. The various types of financing available to business firms are usually classified as: 1. Short-term capital. This is borrowed capital5 that is to be repaid within one year. 2. Intermediate capital. This is borrowed capital that is to be repaid in one to five years. 3. Long-term capital. This is capital whose repayment is arranged for more than five years in the future.
SOURCES6 OF FUNDS FOR SMALL FIRMS: Equity capital. Personal funds — saved or inherited7. Loans from relatives and friends. Commercial bank loans8. Mortgage loans9. The Small Business Administration. Venture10 capitalists.
EQUITY CAPITAL consists of those funds provided to the business by the owner(s). These funds come from the personal savings11 of the small business entrepreneur. If the entrepreneur decides to obtain more funds through equity sources, it can be done by having partners or selling stock. When these sources are used, however, the small business entrepreneur gives up some ownership control of the business and shares the profits.
PERSONAL FUNDS. Whenever potential creditors, partners, or stockholders are invited to invest in or lend financial assistance to a new firm, their first question is, "How much does the owner have invested?" Every business contains an element of risk, and outsiders who invest in a new firm wish to be sure that such risk is shared by the owner. It is important that the would-be owners12 have assets of their own to invest in the firm. The closer they are to 50 percent of the total capital needs that can be provided, the greater will be their independence and share of net profits.
LOANS FROM RELATIVES AND FRIENDS. Many new owners are encouraged13 in their enterprise by parents, relatives, or friends who offer to supply loans to the firm to get it started. The best way to avoid subsequent14 problems is to make sure that loans are made on a businesslike basis. They should be viewed as business dealings15. The right of the owner to make decisions should be respected by all parties involved.
COMMERCIAL BANK LOANS. The commercial bank is one of the main sources of short-term loans. Commercial bank loans are usually for short periods of time (less than one year), but many banks lend money for longer periods. The interest on a commercial bank loan is higher than many other sources. The business owner should establish a credit line with a commercial bank. A credit line means that the bank agrees to lend16 the business owner an amount of money, to a stated maximum, at any time.
MORTGAGE LOANS. If the new firm planners own a commercial building, they can usually secure a mortgage17 On it with payments over as many as 30 years. It may be the building in which the new firm operates. In that case, the planners will be making mortgage payments instead of Rental payments18 to a landlord.
The SMALL BUSINESS ADMINISTRATION is a US government agency organized to Aid19 small business in many ways. This agency offers small businesses financial aid in the form of guaranteed loans and advice about where financial aid can be obtained. The SBA also offers educational aids and consulting services.
VENTURE CAPITALISTS. This is a term used To refer20 to individuals or corporations which invest long-term equity and debt capital in promising start-up and growing businesses. Venture capitalists usually take some equity (ownership) in the firms for which they provide funding. Many venture capitalists only invest in firms that need $100,000 or more financing.
Notes: 1. капитал в форме акций; 2. привлечённый капитал; 3. основной капитал;
4. счета дебиторов; дебиторы по расчётам; дебиторская задолженность; 5. заёмный капитал; 6. источник; 7. наследовать; унаследовать; 8. ссуда коммерческого банка; 9. ссуда под недвижимость; 10. рисковать; рискованное предприятие или начинание; 11. сбережения; накопления; 12. предполагаемый владелец;
13. поддерживать, поощрять; 14. последующий; 15. коммерческие сделки;
16. ссужать, давать взаймы; 17. получать ссуду под залог; 18. арендная плата;
19. помогать; помощь; 20. ссылаться, указывать.
1. Match the words with their definitions.
FIXED CAPITAL, EQUITY CAPITAL, VENTURE, SAVINGS, SECURE A LOAN, MORTGAGE, ACCOUNT RECEIVABLE, RENTAL, LOAN
1) A sum of money due to be received from a customer in the ordinary course of trade but not yet paid.
2) The act of lending, especially on condition that the thing lent will be returned.
3) Sums of money saved, not spent but put aside for future use and in the meanwhile invested or held as cash.
4) The part of the capital of a company that consists of ordinary, deferred, deferred ordinary or founders' shares, all of which together, in effect, carry the-right of ownership (the equity) in the business.
5) A contract by which the owner of land (the mortgagor) borrows money, giving the lender (the mortgagee) an interest in the land as security for the loan.
6) The amount, in money, of the rent for a particular property or part of a property.
7) That part of the capital of a business which is represented by the value of producer goods, i. e. goods held and used to produce the products which the business sells.
8) To make the loan safe for the lender by pledging or mortgaging property with him as security.
9) A business, or a business deal, in which there is some degree of risk, which is accepted in the expectation of making a profit.
2. Supply the sentences with the missing words.
ENCOURAGE, REFER, SOURCE, AID, DEALINGS, WOULD-BE, INHERIT, BORROW, SUBSEQUENT
1) He always... money from his friends and never pays it back.
2) Candidates are required to publish the... of their campaign funds.
3) They ... a weak economy.
4) I met him first when I was a very young... banker.
5) Her success... me to fry the same thing.
6) ... research has produced even better results.
7) We have had... with them for many years.
8) The serial number... to the country in which the car was manufactured.
9) He had sought the... of the counter.
3. Choose the best alternative to complete each sentence.
1) If a company needs to raise a lot of money, it may... shares.
A. put up b. issue c. supply d. purchase
2) Pension … play an important role in the stock market.
A. companies b. trusts c. societies d. funds
3) As an ordinary shareholder, you are... to vote at the meeting.
A. entitled b. titled c. nominated d. persuaded
4) The share... , which is made up of a cross-section of shares, reflects the general activity of the market
A. indication b. index c. measure d. indicator
5) A ... is someone who buys shares, expecting the market to rise.
A. bear b. bull c. dog d. stag
6) A ... is a speculator who expects share prices to fall.
A. bear b. bull c. dog d. stag
7) A ... is a person who buys new issues of shares hoping to sell them quickly at a profit.
A. bear b. bull c. dog d. stag
8) I've put part of the money into an instant... account.
A. access b. excess c. exit d. entrance
9) Bonds issued by the government are often known as... .
A. golds b. guilts c. gilts d. debits
10) What kind of... can I expect on my investment?
A. reward b. prize c. surplus d. return
11) You should have as diversified a... of shares as possible.
A. case b. file c. portfolio d. folder
12) In real... , the $1,000 you invested would be worth $5,000 today.
A. words b. facts c. factors d. terms
13) The higher the risk you... , the more money you could make.
A. take b. do c. make d. invest
14) The market has been extremely... over the past few years.
A. volatile b. wavering c. shocking d. moving
4. Complete each of the sentences by using the past form of one of the verbs on the left and combining it with one of the words on the right. Use each verb once only. Some words on the right are used more than once.
Carry run draw in off out
Come set stand over up stop
1) We ... of computer paper and we had to order some more.
2) They ... a survey on biological detergents.
3) He was bankrupt but he... a company in his wife's name.
4) I ... for Claire while she was away at the conference.
5) The workers... on strike when the management refused to increase their offer.
6) On the way to Australia I... in Bangkok for two days.
7) They ... an agreement which satisfied both sides.
5. Combine a noun from the list on the left with a preposition from the list on the right to complete each sentence. You must use each noun once only, but each preposition can be used more than once.
Access chance effect for in on
Admiration confidence interest of to
1) He was full of... the way she had chaired the meeting.
2) The rise in interest rates has had a considerable... sales of furniture and kitchen appliances.
3) By taking them over we shall gain... new markets.
4) We have very... your organizing ability.
5) I hope they find a... this storage problem soon
6) To cater for the growing... information technology, we have had to put on three extra courses this year.
7) Is there any... seeing you about this some time today?
6. Complete the following sentences with the correct preposition.
1) We are looking... a message which really appeals... the audience. So far we haven't found one.
2) People tend to look... to expert figures such as doctors.
3) We were thinking... doing the ad on television.
4) He insisted... using a balance argument to present the product.
5) I was very annoyed... the simplicity of the arguments. Consumers like to think ... the product.
6) If you look... the word in the dictionary, it means all communication which is non-verbal.
7) Have you heard... Professor Stell? He's very well-known in his field.
8) We've looked... the question of hiring professional actors. It's much too expensive.