Page 206 - Finance for Non-Financial Managers

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Terms of
Duration of
Use
Collateral
Cost
Borrowing
Loan
Revolving Credit line one- Accounts Financing the Business Low
Temporary cash needs;
credit line year renewable, receivable, replacing the cash tied up
but borrowing inventory, other in receivables and
revolves assets owned, not inventory until they can
indefinitely pledged elsewhere again become cash
Accounts Credit line one- Accounts receivable Early access to cash tied Medium
receivable year renewable, up in receivables, similar
loan but borrowing to revolving credit line
revolves
indefinitely
Factoring Invoice by Accounts receivable Getting cash from High
invoice, 30-90 receivables, passing on risk
days, revolving as of collection to the lender
new sales are
made
Flooring One to three High-priced Financing showroom Low
years renewable, inventory, such as inventory of items for sale,
but borrowings cars and boats which are also the
revolve collateral
indefinitely
Term loans Various annual Various, from Long-term purchases of Medium
terms depending collateral being assets or real estate or to
on type of loan purchased to all provide capital for long-
and life of asset assets the company term projects to
financed-one to owns companies without
30 years adequate internal cash
generation
Equipment Three to five The asset being Acquisition of large pieces Medium
loans and years, or longer, acquired, or of equipment or large to High
leasing depending on life refinanced in case of amounts of equipment
of the asset sale-and-leaseback
Bonds Variable, with None, although Major long-term projects Low
lengths to 30 some are mortgage- for large companies,
years and more backed and others including expansion and
are insured against acquisition programs
default
Convertible Variable, with None, although Major long-term projects Low
debt lengths to 30 conversion privilege for large companies,
years and more adds value, including expansion and
especially in a good acquisition programs
market
Figure 11-1. Summary of common business borrowing methods