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Entrep

Financing Scheme

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Laviña Rose Comendador
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3 views

Entrep

Financing Scheme

Uploaded by

Laviña Rose Comendador
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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REPORT IN ENTREPRENEURSHIP

Prepared by:Laviña Rose Comendador


Financing Scheme

• A financing scheme is considered to be any combination of public and private financial


investments required by the infrastructure over its life cycle
• Financing is the process of providing funds for business activities, making purchase or
investment
• Financial institution, such as banks are in the business of providing to businesses
consumers and investors to help them achieve their goals
• It helps determine if an idea is sustainable and then keeps you on track to financial health
as your business mature
• It’s and integral part to an overall business plan and is made up of three financial
statements.
-cash flow statement
-income statement
-balance sheet
What is financing scheme?

• It forms the dedicated capital available to cover the risks determined in the calculation of
risk coverage for the Export Financing Scheme.

What is financing?

• The use of financing is vital in any economic system, as it allows companies to purchase
products out of their immediate reach.

• Financing is a way to leverage the time value of money (TVM) to put future expected
money flows to use for projects started today. Financing also takes advantage of the fact
that some individuals in an economy will have a surplus of money that they wish to put to
work to generate returns, while others demand money to undertake investment (also with
the hope of generating returns), creating a market for money.
There are two types of financing: equity financing and debt financing

• The main advantage of equity financing is that there is no obligation to repay the money
acquired through it. Equity financing places no additional financial burden on the
company, though the downside is quite large.
• Debt financing tends to be cheaper and comes with tax breaks. However, large debt
burdens can lead to default and credit risk.
• The weighted average cost of capital (WACC) gives a clear picture of a firm’s total cost
of financing.
There are two main types of financing available for companies: debt financing and equity
financing. Debt is a loan that must be paid back often with interest, but it is typically cheaper
than raising capital because of tax deduction considerations. Equity does not need to be paid
back, but it relinquishes ownership stakes to the shareholder. Both debt and equity have their
advantages and disadvantages.

TYPES OF FINANCING

Equity Financing

• Is another word for ownership in a company. For example, the owner of a grocery store
chain needs to grow operations. Instead of debt, the owner would like to sell a 10% stake
in the company for $100,000, valuing the firm at $1 million. Companies like to sell
equity because the investor bears all the risk; if the business fails, the investor gets
nothing.
Debt Financing
• Debt financing is essentially the act of raising capital by borrowing money from a lender
or a bank, to be repaid at a future date. In return for a loan, creditors are then owed
interest on the money borrowed. Lenders typically require monthly payments, on both
short- and long-term schedules.

ADVANTAGES OF EQUITY FINANCING


• The biggest advantage is that you do not have to pay back the money. If your business
enters bankruptcy, your investor or investors are not creditors. They are part-owners in
your company, and because of that, their money is lost along with your company.
• You do not have to make monthly payments, so there is often more cash on hand for
operating expenses.
• Investors understand that it takes time to build a business. You will get the money you
need without the pressure of having to see your product or business thriving within a
short amount of time.

ADVANTAGES OF DEBT FINANCING


 Retain control. When you agree to debt financing from a lending institution, the
lender has no say in how you manage your company. You make all the decisions. The
business relationship ends once you have repaid the loan in full.
 Tax advantage. The amount you pay in interest is tax deductible, effectively reducing
your net obligation
 Easier planning. You know well in advance exactly how much principal and interest
you will pay back each month. This makes it easier to budget and make financial
plans.

DISADVANTAGES OF EQUITY FINANCING


 Share profit. Your investors will expect – and deserve – a piece of your profits. However,
it could be a worthwhile trade-off if you are benefiting from the value they bring as
financial backers and/or their business acumen and experience.
 Loss of control. The price to pay for equity financing and all of its potential advantages is
that you need to share control of the company
 Potential conflict. Sharing ownership and having to work with others could lead to some
tension and even conflict if there are differences in vision, management style and ways of
running the business. It can be an issue to consider carefully.

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