BUSINESS FINANCE REVIEWER

DEBT FINANCING- borrowing money from lenders and not giving up ownership. The most
common form of debt financing is a loan
EQUITY FINANCING- the method of raising capital by selling company stock to investors
(stockholders) in exchange of ownership interests in the company
SHORT-TERM FINANCING- debt scheduled to be paid within a year
LONG-TERM FINANCING- debt to be paid in more than a year
BANKS- Financial establishments where money deposited by customers earns interest and can be
withdrawn anytime when ordered by the signatories.

NON- BANKS- Financial institutions that can provide fund requirements of businesses.

 5C’S OF CREDIT:
 CHARACTER-willingness of the borrower to repay the loan
 CAPACITY- 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

Loan- a financial arrangement where a borrower who receives money from a lender agrees to repay the
principal (the amount borrowed) along with interest (add-on rate) within a specific period of time

 THE GENERAL STEPS ON LOAN APPLICATION:

1. Loan applicant inquiries to apply for a loan.
2. Loan officer provides application form, interview the client, and provides list of
requirements.
3. Applicant submits the requirements and the loan application form.
4. Credit evaluation department checks the compeleteness of the documents.
5. Credit investigation is done, and credit worthiness of the loan application is evaluated.
6. The credit analyst prepares a recommendation and will present the recommendation
before a loan committee who approves the loan application.
7. If the loan is approved, post approval requirements will be sent to the loan applicant for
compliance

 LIST OF LOAN APPLICATION REQUIREMENTS

 Loan application
 Proof of identity
 Employer and income verification
 Proof of address
Time Value of Money- is the concept that money you have now is worth more than the identical sum in
the future due to its potential earning capacity

Present Value- is how much money you need to invest today to have a specific amount of money in the
future

- Discounting (computation of present value)

Future Value- is the value that an investment will produce after earning interest

- Compounding (computation of future value)

Compounding- to understand the amount at the future date if we invest sum of money today

Discounting- to estimate what would be worth of future money receivable in today’s value

Amortization- can refer to the process of paying debt over time in regular installments of interest and
principal sufficient to repay the loan in full by its maturity date

 PREPARING AMORTIZATION SCHEDULES

 Period- Month or Period
 Beginning Load Balance- amount of debt owned at the start of the month of period
 Payment- Amount due each month
 Interest- amount of interest included in the payment
 Principal- amount of principal included in loan payment
 Ending loan balance- amount of debt owed at the end of the month or period

 FORMULA’S: