At the end of this chapter,

learners can:
1. Distinguish the sources and nature of credit.
2. Determine the characteristics and C’s of credit.
3. Understand the advantages and disadvantages of
credit.
4. Prepare a Financial Statement of the business.
What is Entrepreneurial Finance?
There is no universally accepted
definition for entrepreneurial finance,
however it can be defines as “the study
of the whole system of raising money,
funds, or capital whether tangible or
intangible for an entrepreneur or
individual seek out investment
opportunities in an environment”.
Lesson 1: Managing the Financial
Aspect of the Enterprise
 FINANCE is the area of economic activity in which
money is the basis of the various embodiments, whether
stock market investments, real estate, industrial,
construction, agricultural development, so on. (Simon
Andrade) It is the management of money and includes
activities such as investing, borrowing, lending, budgeting,
saving and forecasting.
 Finance refers to the money of the business. It consider as
the lifeblood of the business.
1. Start-up a Business
To start-up a business you’ll need
money to buy the resources,
equipment, and materials you need.
You also need to invest where you
will put your business.
 Starting up a business also require to invest
in resources like human resource. But in
small businesses, like sari-sari store or food
stall, the owner is also the worker of their
business, so the money that is located for the
payment of worker, is used for their
additional capital. However, in other business
like manufacturing businesses, human
resource is required to be included in start –
up. Because they are required to have a larger
number of human resources.
2. Run the Business
In order to run the business you need
to have enough money to pay for the
wages of your worker (may include
their SSS and Pag-ibig), payment for
your supplier on time, money to buy
products that will be needed to your
business.
3. Expand the Business
 You also required a money to expand your business, if
you can see that your business is going well and you
know that your money is enough to sustain a new
business.
 New businesses find it difficult to raise finance because
they usually have just a few customers and many
competitors, which lead many businesses fall for
lenders and credited their finances. Lenders are put off
by the risk that the start-up may fail. If that happen the
owners may be unable to repay borrowed money.
 Enterprise describes the actions of someone who
shows initiative by taking a risk by setting up,
investing in and running a business.
 A person who takes the initiative is someone who
“make things happen”.
 Risk-taking is slightly different. In business there is
no such thing as a "sure fire bet”. All business
investments carry an element of risk – which is the
chance or probability that things will go wrong.
 The trick is to take calculated risks, and to ensure that
the likely returns from taking a risk are enough to
make the gamble worthwhile. Someone who shows
enterprise is an “entrepreneur”.
Lesson 2: Sources of Capital
 Capital is the money or wealth needed to produce goods and
services.
 Two Forms of Capital
1. DEBT

✓ Debtcapital or debt financing is obtained through

borrowed funds for the company.
✓ Asset-based financing, requires some asset to be used as
collateral. While borrowed funds plus interest need to be
paid back.
Line of Credit – an arrangement whereby a
lender agrees to lend up to a specific amount of
money at a certain interest rate for a specific
period of time.
Other Debt Financing Sources
 TradeCredit – credit given by suppliers who sell goods
on account.
 Accounts Receivable Financing – short-term financing
that involves either the pledge of receivables as collateral
for a loan or the sale of receivables at a discounted value
(factoring).
Companies – asset-based lenders that lend
 Finance
money against such as receivable, inventory, and
equipment.
Equity Instruments
❖ Give investors a share of the ownership.

Loan with warrants – provide the investor with the

righto buy stock at a fixed price at some future date.
 Convertible debentures – are unsecured loans
that can be converted into stock.
 Preferred stocks – is equity that gives investors
a preferred place among the creditors in the
event the venture is dissolved.
 Common stock – is the most basic form of
ownership and is often are sold through public or
private offerings.
2. EQUITY
Equity capital or equity financing is obtaining funds for the
company in exchange for ownership. This form of capital does not
require collateral and other offers investor some form of ownership
position.
Sources of Equity Funding
Personal Funds
❑ Least expensive funds in terms of cost and control.
❑ Essential in attracting outside funding.
❑ Typical sources of personal funds.
• Savings
• Life Insurance
• Mortgage on a house or car
❖ The entrepreneur’s level of commitment is
reflected in the percentage of total assets than
the entrepreneur has committed.
❖Advantages – easy to obtain money more patient
than other investor.
❖Disadvantages – direct into operations of venture.
A formal agreement must include:
• Amount of money involved
• Terms of the money
• Rights and responsibility of the investors
• Steps to be taken in case business fails.
What is Crowd Funding?
Crowd funding is a method of rasing capital
through the collective effort of friends, family,
customers and individual investors. This
approach taps into the collective efforts pf a
large pool of individuals – primarily online via
social media and crowd funding platforms –
and leverages their networks for greater reach
and exposure.
What is Business Angels?
Business Angels – are affluent and wealthy
individuals who invest who invest their
personal capital in start-up companies that
are typically early-stage in return for an
equity stake.
❖ Types of investors
 Investors can influence nature and
direction of the business.
 May be involved in the business
operations.
 Entrepreneurs needs to considers
degree of involvement.
❖ Private Offerings
 An formalized method for
obtaining funds from private.
 Fasters and less costly.
What is Venture Capitalist?
Venture Capital is a type if funding for a
new or growing business. It usually
comes from venture capital firms that
specialize in building high risks financial
portfolios. The venture capital firms
capital firms given funding to the start-up
company in exchange for equity in the
start-up.
Lesson 3: Nature of Credit
Credit – is ‘the power or ability to
obtain a thing of value in exchange
for a promise to pay definite sum of
money, on demand or future
determinable time’. Credit creates
obligation and rights to both debtor
and creditor.
NATURE OF CREDITS
1. Ability to obtain a thing of value a cash from or
merchandise form of credit.
2. A promise to pay. It should be in writing to be valid.
Acknowledge by both the debtor and creditor.
3. Define sum of money. When you are crediting a
money, the principal amount, interest and maturity
must specify in the document.
4. Payable on demand. The same document also involve
a future date as loan maturity.
FOUNDATIONS OF CREDIT
1. Confidence – creditors must trust the debtor’s
personal characters. Nowadays, there are forms
or credit information to be fill-up by the debtors.
It is the creditor’s guide about debtor’s personal
character.
2. Proper Facilities – it should have credit
information where can found the data about the
debtor, and credit document which written
document signed by both parties. The pricipals
amount, interest and maturity date are also
specify in the credit document.
3. Stability of Monetary Standard – it
means that when you have more stable
value of money or source of income then
it has the greater possibility of approving
credit.
4. Government Assistance – regulations
protecting both parties are highly
considered.
5. Credit Risk – there are possibility that
the debtor will not pay.
USERS OF CREDIT

Who are the users the credit?

1.Consumers
 is a person or individual or a group who
pays some amount of money for the thing
required to consume goods and services for
personal, social, family, household and
similar needs.
2. Businesses
 A business is defined as an organization
or enterprising entity engaged in
commercial industrial, or professionals
activities. The term business also refers to
the organized effort and activities of
individual to produce and sell goods and
services for profit.
3. Government
 is a system to govern a state or
community. Even local government
resort to borrowings when expected
revenues fall short of program
expenditures.
LESSON 4 : CHARACTERISTICS OF CREDIT