OVERVIEW | Ustening Getting a bank loan Vocabulary Idioms Reading aising finance ] Language review + Dependent prepositions Skis — Negotiating Case study Viston Film Company Ms) ay ea ebay) Pee you can afford to lose. aes aa bank A) alo b) a friend or colleague @) a credit card company ©) amember of your family £) another source Ifyou needed to raise money for the following, which source of finance would you use? to buy acar buy an apartment ar house goon an exatic holiday * to nance your children’ # to buy ya ation partner an expensive present What do you think these sayings mean? Do you agree with them? a) The love of money isthe root of all evil b) Time is money, 1) Money talks. 4) Money can’t buy you love. €) Don't throw good money after bad.9 Raising finance © What do you think you would need to offer a bank to get a loan? he © © 241 Listen to the frst part ofthe interview with Patrick Grant, specialist in finance. He stalking about how to get a loan from a financial organisation. 4 What four things does Patrick say about the question in Exercise A? 2 What different types of security fo a loan does Patrick mention? 3 Fillin the chart below. is TYPEOFLOAN PURPOSE OF LOAN LENGTH OF LOAN ij ‘A. Patrick Grant © Moz Listen to the second part of the Interview and answer these questions. 4 What action does Patrick recommend ifa request for a loan Is turned down? 2 After getting the loan what kinds of things could you negotiate? 3. What is Patrick’s final piece of advice? SEITE © complete the idioms betow with the following words. ms tees fool muck rope object _ licence 41 You really can sell anything on these Internet auction sites. 's money for old 12 We're way over budget on this. We'll have to make some cutbacks. Someone needs to tell the marketing department that money doesn't grow on . 3 Every great industrialist wil tell you that where there's there's money. 4 Charging people to park thelr cars at alrports [50 ssn f0 print money. '5 He's always investing in businesses which have no hope of being successful. | don't know much about business angels but it seems to me that a and his money are soon parted. 6 Their new headquarters cost millions and millions. They are making so much, profit that money is no ‘Match the idioms in Exercise A with these definitions, a) Be careful with money as there is only a limited amount. ») Money earned easily by doing something which is not difficult. (two idioms) ©) Where you find dirt you also find money, 4) Stupid people spend money quickly without thinking about it. «) You can spend as much as you like on something. ‘Comment on each statement using one of the idioms in Exercise A. Example: They pay me a fortune and the work is realy easy. {t's money for old rope, then. 4 He inherited two million dollars and spent it ll in less than a year. 2 Gloria can afford to spend huge sums of money each week. 3 Mario set up a garbage collecting company, It was So successful that he was able to retire at 40. 4 My son expects me to buy him anything he wants. uzLs Ratsng nance FSETIEGY © Before you read the article choose the correct word for each sentence. Raisingfinance | 3 Thegroup’s of twelve stores in Bordeaux was successful a) acquisition b) property ——¢)- overdraft. 2 They are financing the acquisition through . rather than debt. a) cashflow —_b) equity ©) assets 3 Ourstate-of-the art machinery Is our major a) possession b) asset 2 equity 4 The.. rate on the loan was 12%, a) fee »b) charge ©) interest 5, They could not pay their debts and faced . a) bankruptcy) warranty ——_¢)_ overpayment 6 Sorbat has gone into with debts of about £20 million. 2) indemnity) investment ¢) administration © Read lines 1-64 ofthe article and answer these questions. 4 What does the article say about cashflow? 2 What is really important when looking at raising new business finance? 3 What are the key differences between equity and debt? ‘4 What isthe main aim when raising finance? @ Read tines 65-133 of the article and match the words 1-7 and phrases to their meanings a)-g). 1 venture capital a) Lending a business a sum of money equal to that owed to the business by its suppliers or customers 2 grant b) Buying expensive goods by making regular payments over a period of time 3 invoice discounting Money lent to start a new business 4 hire purchase 4) Allowing customers to take out more money from their bank than they had in it 5 leasing @) Money borrowed on which interest is paid 6 loan £) Giving someone the right to use something for a period of time in return for payment 7 overdraft 8) Money given to an organisation for a particular purpose, often by a government. © Which source of finance described in the second part ofthe article is most appropriate for each ofthe following situations? Explain your decisions. 4 a company in a high-technology industry which does not wish to purchase all the expensive equipment it needs 2 anew company ina depressed area which will create a lot of new jobs 3 a company that has already borrowed a lot of money but cannot pay its costs until slow-paying customers pay their bills 4 a successful company wishing to engage in a high risk but potentially profitable new enterprise where the owners are willing to give up part of their equity in order to expand @ bo you agree withthe following. Why? Why not? 4 People with overdraft are bad money managers. 2 tis good business practice for a company to pay its bill ate.Raising finance nen a company serving reply, for example when contemplating investment in capt! equipment or an acquiston, ts current rancal resources may be inadequate. Few roving companies are able to fiance ther expansion plan from cash lw alone They wil therefore need to onside ising ance fom other eternal sours. naetion, managers who ae looking to buy-in to a business (management by of MB’ or buy ‘ut (management buy-out or MBO) 2 business fom its owners, maynot have the resources to acquire he company. They wil need to raise finance to achieve ther objactives. There area numberof potential soures of ance to reel the needs of growing business oo fiance an MBI MBO: Bstng shareholders’ and rectors! turds Family and tends * Business anges * Gearing banks (overdrafts, short or ‘medium tera oars) =Inoie discounting Hie purchase and easing =Merctant banks (medium to long tem loans) Venture capital key consideration in choosing he source of new busingss ances to strike a balanoe between equity and debt to ensure te funding structure sus the business. The main dterences between borrowed money (bt and equity are ‘hal, th deb, bankers request interest payments and capital repayments, and the borowed money i usualy secured ‘on busines assets or the personal asses of shareholders andr directors. ‘Abankals has the power to pace a business into administration or bankruptcy iit faults on debt intrest or repayments or ts prospects deine. Incontas, equity investors take the sk of fale te other shareholders, hist they wil bent from partipation in increasing lees of profits an onthe ‘verual sala oftheir equity sake. 2 2 s The overal objective in alsin ance fora company i to avoid exposing the business to excessively igh borrowings, bu without unnecessary luting the share apt. This wil ‘ensure atthe financial rs ofthe company is kept at an optimal eve, Raising tnance is dependent on 2 ‘good business plan wich demonstrates ‘atthe managements aware of al the risks move, ‘TYPES OF FINANCE Venture Capital Venture capital is general erm to escbearange of oranay and preference stares where the investing Inston acquires stare i the business. Venture capt s intended for tigher risks suchas start-up stuaons and development capita for more ‘mature invesiments. There ar also cei age industrial companies which ‘have funds avaliable to invest in growing businesses and is corporate verurng's anata source of equity finance, Grants ‘Government, local auhores and local development agencies are the major sources of rans. Gran are normally made to faite the purchase of ses and ete he generation of Jobs or the training of employees. Invoice Discounting ance canbe raised against debis ‘ue from customers via noice lscounting, thus improving cash ow Debiors are used a the prime security forthe lender and the borrower may obtain up to about 80 percent of approved debts Hire Purchase and Leasing 9 Raising finance J ire purchase agreements and ‘easing provide france tor the acquit of specific asets such as cas, equipment and machinery invohing & deposit and repayments over ypc, thee to ten years. Loans ‘Medium term loans (upto seven yeas) and long term loans (ncuding commercial mortgages) are provided for specie purposes suc as agurng an asset, business or shares. The loans normally secured on the asset or assets a te interest rate may be variable 0+ feed, Bank Overdraft ‘An overdrafts an agreed sum by ‘ch customer can overdaw thet current account. Itisnonmaly secured ‘on current asses, repayable on demand and used for shor term working capita fvtuations The ntrest costs normaly vale an inked tothe bank base rate Completing the fnance-aising Raising tnnceis often a complex process, Busines ranagament needs to asess saver alternatives and then agai tems which are aoceplble to the nance provider. The main negotiating pons are often as flows: Whether equity investors take a seat on te board oles ascribed to equ investors Level of warranties and Indernites provided by the drectrs Facies fees and casts Wr bears cost of due digence From 2005 Tir Limited Gounesor2unebusmenfinece ing iran) to19 Raising finance Perce Dependent prepositions = “verbs © Venture capital is | intended for higher risks | ome imerest costs linked tothe bank aes Prepositions commonly occur after certain verbs, adjectives and nouns. Look at these examples from the article. Adjectives © negotiate terms ‘© management Is Nouns © investment in which are capital equipment acceptable to the finance provider © a sharein the aware of all the business risks involved D mee 34 © Read the article again then complete these sentences with sutable words and dependent prepositions from the article. 4 Akey.. hoosing the source of new business finance isto strike a equity and debt. bank has the power to place a business into administration or bankruptcy they wi .. debt interest or repayments. 3 Equity investors take the vmnewns participation increasing levels of profits. © Join the haves of sentences below. They are all from newspaper articles. 4 She had a sound business specialising 2 Self-employment may be the only alternative 3 Researchers say this results 4 Why do women stil have limited access 5 Once you understand the mind set of your investors, you can profit 6 He can see opportunities which lie, through lack 7 The document contained an assessment 8 |want a return 9 We are very focussed 20 They are strongly opposed Negotiating | a) on my investment. b) ofthe risks facing European companies. © of nance, beyond his grasp. in lower failure rates. ©) from their suggestions. £) in renovating and refurbishing buildings. 8) to starvation in poorer countries. bh) toventure capital? 1) to any further investment. on transferring ideas from the hard world of industrial economics to the dot-coms.. 18 tips do you agree with? Explain why or why. 1 Inthe early stages, you need to ask the other side a lot of questions. 2 Always interrupt if you don't understand something. 3 Never make a concession for free. Always get something in return. 4 Use simple, direct language and be open about your aims. failure like other shareholders, whilstising fin 5 Signal what you are going to do. For example, say, ‘Id just like to clarify that.” 6 Summarise often so that everyone is clear when you reach agreement. 7 Adapt your language so that you don't appear aggressive. 8 Talk about your emotions and how you are feeling, © Research shows that skilled negotiators often use techniques 2-5 below to achieve thelr negotiating objective, Match the techniques to their defi 41 Open questions _a) say what you are going to do before you do i 2 Closed questions _b) modify language so that it does not appear too aggressive, 3 Softening phrases ¢) go over the points covered to highlight when agreement is reached. 4 Signalling phrases _d) gather information and explore the opposite number's views. 5, Summarising «) check understanding and ask for precise information. @ 7 23 Listen tothe five expressions and match each one to the correct technique listed in Exercise 8. © (7 s.tisten to the diatogue and complete these expressions. Then place each expression under the correct heading in the Useful language box. what other people are providing finance for you? 2 Have you approached any other bank, if. 3 Vdlike Why don’t you revise your business plan? 4 Good, . what sort of repayment terms do you have in mind? 5 Let me... The 250 thousand would be for working capital. 6 We seem to be getting somewhere now. what we've agreed so far. Us eful language ‘Open questions Closed questions ‘Summatising Why doyouneeda --Doyouhave any other Let's see what we've | loan? backers? got so far. What other sources of | Canyoutransferthe Let's recap before we finance do you have? money bynext week? gon 10. Signalling phrases, Softening phrases Vlike to make a Ym sorry, we can’t go proposal | think we that high, should. We were hoping to pay Could | make a alittle less, suggestion, why don’t Workin pairs. Role play the following situation, ‘The creator of an exciting fange of fastion jewellery (necklaces, earrings and bracelets), sold under the brand name Eternity, meets a business angel to get additional investment to develop their business. The owner of the business has already borrowed 100,000 euros from a family member, and in return has given that persona 20% stake in the business. Owner of business: turn to page 351. Business angel: turn to page 352.Background Vision Film Company (VEC) was founded fifteen years ago by two Polish expatriates Now based in Krakow, Poland, it has produced numerous television commercials and documentaries, some of which have won, international awards for originality and small, highly experienced production staff and depends on an extensive freelance staff for its projects. The Director and Executive Producer of VFC now want to make a feature film. The film is a drama set in postwar Europe. VF presented their business plan to a film finance company, European Finance Associates (EFA), > have EFA have provisionally agreed to finai project with a budget limit of $10 mill | They have asked for a second meeting next month (April) to negotiate the details of the finance package. Industry practice is for film finance companies to be repaid their investment, usually with interest, and receive a share of the film’s net profits, Here are some extracts from the VEC Business Plan. Executive Summary ne extraordinary success of independent lis in recent Academy Awards shows ‘that there is a huge demand for dramatic human interes fs, whether they are performed by unknown actors or by tars. This proposals for an independent feature firm with a budget of $5.5 million The Posh fais a romantic thriller about Alicia young Polish interpreter and a Brtish inteligence office ho meet and fal in love in the chaos of Vi nd of the Norld War Without warring Alicia er bref, passionate relationship ends, When, ten years later, they gain by chance in Bern their feelings h other are as strong as ever Howeve 1e mystery behind Alicia’ disappearance Lnfols it threatens to destroy them both. This story will have great appeal to all age groups, but especialy to flm-goers in the 25-40 age group, who form a large segment ‘of most counties fm-going audience.Target audience 2540 year olds; well-educated, frequent flm-goers. ‘The fm wil also appeal 0 older people, Target market Worldwide dserbution. Main markets: USA, Canads, Europe, Promotion ‘To help the producer make deals with major fm istrboutors,the fm wil be shown at key fim festivals (¢ Cannes and Beri). Production Schedule This year uy Complete francing arc December Complete pre-producton Next year March-June Cary out principal photography uly Complete suco editing Final year January-June Sundance Fi Festive (US distribution dea Brin Fim Festival Cennes Fim Festal (European cistrbton deals) Pubic campaign uly Release fim i the United States and Europe ‘Three-year income projection summary: Gross revenues Low:$15million Medium: $25milion High: $49milion yy pay wyyayyay4 The Polish Affair na audiences worldwide ere Reasons will appea — Outstanding seript = Romantic interest - Exciting locations Warsaw, Vienna, Berlin — Dramatic tension Draft Budget (key costs USS) Story and script 400,000 Producer fe /coste 370.000 Director’ fee 120,000 Principal artistes 140,000 Total 1,030,000 Production unit 1,500,000 Camera crews / equipment 290,000, ‘Artistes (other than principals) 280,000 Musle 450,000 ‘Travel and transport 230,000 Hotel and living expenses 950,000, Completion bond® 290.00 Total 3,990,000 Other expenses 420,000 480,000 TOTAL cost 5,500,000, (CA completion bond slice an insurance policy. a producer ‘uns out of money or exceeds hisher budget. che completion ‘bond provides the finance to finish the fm) Workin groups. Group A: Director and Executive Producer of Vision Film Company (turn to page 153) Group B: Directors of European Finance Associates (turn to page 250), Read your role cards and prepare for the negotiation, ‘Then hold a meeting and negotiate a suitable agreement. Writing As Executive Producer of Vision Film Company or as a Director of European Finance Associates, write an e-mail to all senior staff informing them of the results of the negotiation and indicating how the project will proceed. D Writing jite page 130 (