I.

Case Background
The company of Ms. Muff the owner of Sweet Beginning Co. encountered a
problem in the early of the morning. There was supposed to be a deliveries that
going to be leave the shop and deliver it to the customers. The cloths which were
scheduled to be delivered were already packed and waiting on the loading bay. It
was past 30 minutes of the schedule delivery, but no delivery truck was on sight.
The problem is they’re already one (1) month late from their scheduled payment. Mr.
Phil, the company’s accountant hopes of drawing cash from the company to pay the
delivery contractors, but Mr. Phil regrettably reported that the company does not
have enough cash to pay it. As, result the shipments of the ordered products, will not
be delivered to the customers until the company figure out how to pay their fees with
the delivery contractors. However, too much delay of the deliveries may frustrate
those customer and give a bad reputation to the company. To be able, to deliver the
products that’s been ordered, Ms. Muff is going to take a loan to the Fresh Rural
Bank. Ms. Muff, must render and explain if the company is profitable and doing well,
in order to approve their request of borrowing cash in Fresh Rural Bank, in able to
pay their bills.
II. Methodology
The Cash Budget is made to help and manage their cash. It also helps their
company to make critical decisions, such as creating cash reserve to make
arrangement for projected short ages and using excess funds prudently. Projected
Financial Statement, will provide insights in how will the company be profitable, as
well as data and information, potential lenders and investors needed to understand
how the company will be successful. The owner of Sweet Beginning Co. will be
requesting a loan to the Fresh Rural Bank, in order to approve their loan request,
Ms. Muff is going to show their monthly cash budget and projected financial
statements to have a formal and legal transaction to the Fresh Rural Bank. If the
bank, found out about the company’s problem it has a possibility that the loan
request will not be approved.
III. Budget and Projections
This will be a greater aid on Ms. Muff to prove that the company’s, has a good
financial standing on the succeeding year of operations. If ever the Fresh Rural
Bank, accepted their loan request. The Cash Budget, forecast the timing of these
cash outflows and matches them with cash inflows from sales and other receipt. The
Cash Budget is also a control tool to monitor, the outflows and inflows of the
company’s cash. The projection of financial statements, obviously has a capacity to
run a business well and can maint6 primary expenses, assuming that the company
is going to be profitable in the future.
IV. Conclusion
To conclude this case, if the Fresh Rural Bank approved the company’s loan
request, based on their Cash Budget and Projected financial statements. The Sweet
Beginning Co. will be able to pay their fees and will continue to operate in the future,
because it’s still performing well and it will be able to sustain its operations despite of
the problems they encountered.
In addition, to avoid situations like that the accountant of the company or even the
owner must always monitor their Cash outflows and inflows. They must monitor it, in
order for them to resolve such problem earlier than they do.
Part II.
1. What are the Advantages and Disadvantages of long-term debt financing?
Give at least 3:

Advantages:
 Stability – Long-term financing is a more solid debt management tool for
businesses and individuals than a short-term loan. Long-term loans, unlike
some short-term loans, such as credit from a supplier, can be canceled at
any time due to a lack of a written agreement, are detailed in formal
contracts. The monthly payments are either set or variable, depending on
the market. When it comes to planning for bills and expenses, long-term
financing gives borrowers more certainty.
 Low maintenance and Monitoring Cost – Although long-term loan
instruments necessitate a lot of information from you to the lenders, once
they're in place, the required maintenance is modest. It cuts down on the
amount of time it takes to keep the loan in good standing.
 Flexibility – Long-term debt financing options offered to borrowers include
mortgage leases, reverse mortgages, and loan refinancing, all of which
can be tailored to meet the borrowers' needs. It gives you more spending
flexibility and control.

Disadvantages:
 Interest on debt is a permanent burden to the company. – Whether
the corporation makes a profit or is not legally obligated to pay interest on
debt, it must pay a fixed rate of interest to bondholders or creditors.
 A major drawback of long-term debt. – In the short run, it will limit your
monthly cash flow. The more debt you have, the more you are committed
to paying it off each month
 Debt is the riskiest source of long-term financing. – The corporation is
required to pay interest and principal on time. The company will go
bankrupt if interest and principle payments are not made on schedule.
2. What are the Advantages and Disadvantages of Equity Financing?

Advantages:
 Freedom from debt – Unlike debt financing, investing does not require
any repayments. Being debt-free can be a major benefit, especially for
small businesses that are just getting started.
 Business Experience and Contracts – Investors frequently bring more
than just money. Experience, management or technical expertise,
contracts or a network, and company credibility are all valuable assets.
 Follow up funding – As the business develops and grows, investors are
frequently eager to contribute further cash.
Disadvantages:
 Shared Ownership –You will have to give up some control of your
business in exchange for investment funds. Investors not only get a piece
of the earnings, but they also get a say in how the company is operated.
It certainly offer benefits, but you must consider how much power you are
willing to give up.
 Relationship – Accepting investment cash from family or even friends
may have negative consequences if the firm fails.
 Time and Money – It takes a lot of effort to approach investors and
become investment-ready. It requires time and money, and if you have to
spend a lot of time on investment methods, your business may suffer.
3. Identify the different sources of short-term and long-term funds. Give at
least 3 and define.
Sources of Short- term funds:
 Trade Credit – firm customarily buys its supplies and materials on credit
from other firms, recording the debt as an account payable. This trade
credit, as it is commonly called, is the largest single category of short-term
credit. Credit terms are usually expressed with a discount for prompt
payment.
 Commercial Bank Loans – Commercial bank lending appears on the
balance sheet as notes payable and is second in importance to trade
credit as a source of short-term financing. Banks occupy a pivotal position
in the short-term and intermediate-term money markets. As a firm’s
financing needs grow, banks are called upon to provide additional funds. A
single loan obtained from a bank by a business firm is not different in
principle from a loan obtained by an individual. The firm signs a
conventional promissory note. Repayment is made in a lump sum at
maturity or in installments throughout the life of the loan. A line of credit,
as distinguished from a single loan, is a formal or informal understanding
between the bank and the borrower as to the maximum loan balance the
bank will allow at any one time.
 Secured Loans – Most short-term business loans are unsecured, which
means that an established company’s credit rating qualifies it for a loan. It
is ordinarily better to borrow on an unsecured basis, but frequently a
borrower’s credit rating is not strong enough to justify an unsecured loan.
The most common types of collateral used for short-term credit are
accounts receivable and inventories.
Sources of Long-term funds:
 Equity Shares – It represents the ownership capital of a firm. A public
limited company may raise funds from public or promoters as equity share
capital by issuing ordinary equity shares. Ordinary shareholders are those
the owners of which receive their dividend and return of capital after the
payment to preference shareholders.
 Preference Shares – These are shares which carry the following two
rights:
(i) The right to receive dividend at a fixed rate before any dividend is
paid on other shares.
(ii) The right to return of capital in the case of winding-up of company,
before the capital of the equity shareholders is returned.
Long-term funds from preference shares are raised by a public issue of
shares. It does not require any security nor ownership of a firm is affected.
It has some characteristics of equity capital and some of debt capital. It
resembles equity as preference dividend, like equity dividend is not tax
deductible payment.
 Debentures – A debenture is a document of acknowledgement of a debt
with a common seal of the company. It contains the terms and conditions
of loan, payment of interest, redemption of the loan and the security
offered (if any) by the company.
4. Discuss when to use short-term funds in business.
 To receive immediate financial funding, the company can request for
short-term financing until the emergency subsides, such as to fund
incomplete projects or to pay for unexpected legal bills. A person who is
new to running a business or has less than one (1) year of experience
should prioritize their investment over their earnings. While you're looking
for new clients, a tiny cash infusion can help your organization stay afloat.
If you're thinking about expanding your business, short-term financing can
 help you get the extra cash you need to finance a temporary expansion
and help your company develop and expand. If the business need new
equipment or inventory.
5. Discuss when to use long-term funds in business.
 Long-term financing is typically used to purchase big assets such as
buildings, equipment, and other assets that serve as loan collateral. Long-
term debt is a typical source of financing for businesses, notwithstanding
the hazards. Long-term capital will be used by the company to develop its
operations and acquire a manufacturing facility.
 Business Loan Application Letter

August 15, 2021

Sweet Beginning Co.

To: Fresh Rural Bank,

I ‘am writing this letter to inform you that, I’m looking forward to applying
for a business loan from your bank. This will be use for the expanding of my
company. As per bank rules, I will show my company financial background,
along with the necessary documentation. Please see the attached documents
that outlines my business plan including the projected financial statement for
the next year and the clear states of my asset to date.

I request you to kindly guide me through the procedure of applying for a

business loan, also provide the rate of interest and amount eligibility. I believe
you will consider this as genuine and in case any query arises, you may , I
can be reached at applicant’s email. Thank you for your attention.

God speed and hoping for a positive response.

Sincerely yours,
Ms. Muff
CEO of Sweet Beginning Co.