Finance Strategy

Dan, Shaunagh, Titi, Josh

Identify the key choices firms have

to make in deciding the best
method of finance.

Ways to finance a business.

1. Financed by debt, which includes
borrowing in the forms of a bank
loan or bonds.

2. Financed by equity venture

capitalism, common stock

Types of Bonds
Treasury (issued by government, risk free)
Zero coupon (no interest, repaid at par)
Floating rate, inflation linked (interest rate varies)
Perpetual bonds
Convertible bonds (to shares at specific rates)
Callable/puttable bonds

Shares
Common stocks, preferred stocks,
ESOs,
Gain capital & Knowledge and
experience,
have to give up % of company,
Costly and time consuming,
Only larger companies can go public,
SMEs are not quoted companies.
Have the option of paying dividends

Loans
Have to make monthly repayments
plus interest. If fail to risk of the
business going bankrupt and
personal bankruptcy.
Gain decrease the growth rate
You keep control
The interest paid on the loan is
taxable, is an allowable expense

What in practice do Banks look for

in financing a small-medium
enterprise?

CAMPARI
Lending model used by
banks

Character
Ability
Margin
Purpose

Amount
Repayment
Insurance

Character

Google
Companies House
References
Local knowledge
Bank statements
Identity
First impressions

Ability

CV/qualifications of team
Company management structure
Quality of advisors
Financial history
Liquidity
Gearing
Management information
Strategy

Margin
Reward versus risk
Additional income generating
opportunities
Commission
Fees

Purpose

Ethical use of funds

Improving business performance
Acquiring additional business
Asset finance
Non speculative

Amount

Borrower stake
Fees
Tax
Cost overruns
Sufficient?

Repayment

Cash generation
Profitability
Diverse income streams
Debtor book mix
Refinance
Monitoring & control
Competition
Industry cyclicality

Insurance
Typical security freehold,
debenture, guarantees
Valuing and accessing security
Managing interest rate risk
Managing currency risk
Environmental risk
Keyman/succession
Business Insurance

Long term
Sustainable and profitable
Relationship orientated
Can repay their debt

 A scheme with the Bank of England

to enable banks and building
societies to borrow from them at
cheaper rates, so they can then lend
to SMEs at lower interest rates

 How accurate is finance theory in

predicting corporate borrowing
behaviour?
Titi

 History does not always repeat itself,

using concepts that depend on
historical statistics arent necessarily
feasible for predicting corporate
borrowing behaviour