Latest Stories
Most recently published stories in Trader.
Bond Financing
Bonds are actually loans that people, like you and me, make to companies. In exchange for the loan money, companies issue bonds. The terms of the loan are set out in a written agreement called the bond indenture. This stipulates the interest rate that will be paid to bondholders and when the principal will be repaid. It also designates a trustee, who is responsible for seeing that the terms of the agreement are met.
By Daniel Joseph 4 years ago in Trader
Determining Flexible Hurdle Rates
When properly used, flexible hurdle rates can provide reasonable yardsticks for judging prospective spending proposals, and they also avoid the pitfalls associated with using a single hurdle rate. To apply flexible hurdle rates to your capital spending program, you will need to rate each proposal according to its degree of risk. High-risk proposals should require a relatively high rate of return to be acceptable; medium-risk, a somewhat lower return; and low-risk proposals, an even lower rate. Minimum-return standards for each risk category are based on assumed-risk capital costs. This approach involves three basic, relatively easy steps:
By Daniel Joseph 4 years ago in Trader
Finding the Right Type of Loan
Despite the intimidating procedures involved in negotiating a loan, your banker wants to lend you money. That’s the institution’s business. He has to be certain, however, to keep the bank’s money under control. One way to impress your banker is to speak his language; structure your loan proposal so that it fits neatly into one of the many loan categories that the bank uses.
By Daniel Joseph 4 years ago in Trader
The ABCs of Bank Borrowing
Asked why he robbed banks, Willy Sutton, a wily stick-up man, once said, “Because that’s where the money is.” If you’re a small company, you probably do nearly all your financing through bank loans, which means that you’ll be taking on debt. There are sound reasons for financing the growth of your company by using debt rather than the other principal form of financing—selling shares in the company. Debt-service payments are a deductible business expense; dividend payments are not. When you issue new debt, you leverage your company to increase earnings potential. Issuing new common stock dilutes your earnings. Most important, new debt does not weaken control of the company, as would an equity financing.
By Daniel Joseph 4 years ago in Trader
Where to Look for Funds
Companies raise money for expansion in three ways. First, businesses can use retained earnings, which is the money they earn through their operations and do not distribute as dividends to share¬holders. This simply means paying for an expansion project with the cash you generate through profits, similar to the everyday personal purchases you make. The second method is borrowing, and the third is equity financing (the selling of shares to investors).
By Daniel Joseph 4 years ago in Trader
If Your Banker Turns You Down . . .
Most businesspeople have been turned down for a business loan at least once in their careers, and it can be a wrenching experience. If your loan request is refused, don’t panic. Your company will probably prosper, even without the extra cash. However, you have some work to do. The first task is to find out why you have been turned down. Ask your banker directly. Ask for specifics; don’t settle for a vague answer, such as “undercapitalization.” You can’t correct the situation unless you know what is wrong. Most loan requests are turned down for one of the following reasons: 1. Poor communication. If you and the banker don’t hit it off, the chances for your loan drop precipitously. Solution: Ask to be serviced by another loan officer. You have a right to expect that the person serving you will be empathetic about your problems. 2. Uncontrolled expansion. Banks shy away from a company with a revenue growth rate that surpasses its ability to finance necessary expansion. Solution: If you want to finance an expan¬sion program, make certain that your business plan includes a full explanation of how your company expects to keep pace with sales growth. 3. Overly optimistic business plan. Your bank will check your sales and earnings forecasts against industrywide forecasts and may also match your projections against those of a company in a similar business. If your forecasts appear too optimistic, your loan will probably be turned down. Solution: Keep forecasts realistic, even conservative. 4. Past misuse of loan funds. If you use funds for a project not in your statement of purpose and the bank finds out, your chances of receiving another loan from that bank are slim. Solution: If circumstances beyond your control make it impossible to fulfill loan conditions, inform your bank at once. 5. Rapid inventory buildup. To a bank, a sudden surge in inventories means one of two things: poor planning or an unanticipated drop in sales. In either case, there is reason to hold off new credit. Solution: Make sure your inventories are in reasonable shape before you apply for a loan. Don’t expect the bank to finance inventories above the range you normally carry.
By Daniel Joseph 4 years ago in Trader
The Loan Application
A lender will make you fill out a loan application. Typically, the application asks for a great deal of information, some of which will be contained in the business plan: ● The loan amount requested. ● How, when and from where it will be repaid. ● Description of collateral. ● Names, personal financial statements and income tax returns for anyone who will personally guarantee the loan. ● General information about the business: name, addresses, phone numbers, tax ID numbers, year-end statements. ● Type of business and history of the busi-ness. ● Structure, management and ownership, including résumés. ● List of other businesses that the owners control. ● Complete audited financial statements for the last three years, including bal¬ance sheets, income statements and projections through the end of the year. ● Cash‑flow projections for the term of the note. ● Recent aging of accounts receivable. ● References from financial institutions with which your business has any kind of relationship. ● Customer references. ● Report on any significant developments for the business. ● Any additional material you want to include, such as brochures to help the lender understand the business.
By Daniel Joseph 4 years ago in Trader
Delirium and Self-Control: Riding the Bear Market
A bear market is a place where all hope is lost and delirium is your new reality. Imagine losing all your savings. Followed by a future where you can’t produce any extra money. You are either too ill or too old or the world has collapsed onto itself and that’s it: no income, no hope, no future.
By Mona Lazar4 years ago in Trader
