GRADE:

Sources and Uses

Of
Long-term Funds
(Group 7)
Teacher: Sir. Raf Anacleto

Members:

Sumague, Rjay

Cruz, Kc Rose

Divino, Bea Angeline

Escotido, Raymart
Sources and Uses of Long-term Funds

- Are used for long-term investment or sometimes called capital

investments.
- Long-term funds can also be used to finance permanent working
capital requirements

The following are the different sources of Long-term funds

1. Equity Investors
- Can be issued common stocks.
- This is the most patience source of capital.
 Common stocks can be issued through different approaches.
2. Internally Generated funds
- Instead of declaring cash dividends, the company can use
internally generated funds for expansion or to finance other types
of capital investment.
3. Banks
- Are sources of different types of financing from short-term to long-
term?
4. Bond Market
- This market is gaining more popularity among our big publicly
listed companies for their fund racing activities.
5. Lending Companies
- This are the same lending companies previously discussed
- Provide long-term loans ranging from 2-5 years.

Problem Faced by SMEs in Financing

- While there seems to be an abundance of funds available for SMEs

- The reality is that SMEs are not able to avail of most of these
facilities for many reasons.

The following reasons for the Inability of SMEs to take advantage of

available financing:

1. Limited track record

2. Limited acceptable collateral
 3. Inadequate financial statement
4. Lack of business funds

The following potentials creditors of these SMEs cited the following

reasons for ejecting the loan application:

1. Poor credit history

2. Insufficient collateral
3. Insufficient sales, Income, and Cash flows
4. Unstable business type
5. Poor business plans

The lack of reliable information about SMEs makes it difficult for the
potential funds providers to assess their credit worthiness.

Duties of the borrower to creditors:

This section lists down the duties of a borrower to its creditors

1. Pay the creditors based on the payment schedule agreed upon.

- One way of establishing credibility is paying obligations on time.
2. Provide the collaterals as agreed upon in the loan negotiation with
proper documentation, if necessary and if applicable (e.g
annotation of the transfer documentation of the title)
3. Comply with the provision of the loan covenant such as
maintaining certain liquidity and leverage ratios.
- These conditions are supposed to benefit the borrower so that his
company will not be over exposed.
4. Notify the creditor if the company is acquiring another company or
the company is now the subject of acquisition the interest of
creditors may be jeopardized if new owners take over the company.
5. Do not default on the loans as much as possible
- Aside from the creditors, there may be parties such as the
guarantors of the loan who will be put at a disadvantage of the
borrower defaults.