Financing A Business

Front 1

A percentage of a borrowed amount that a borrower pays in
addition to their loan.

Back 1

Interest rate

Front 2

Types of interest rates used when making capital investment decision in business and their description:

Back 2

1) Prime Rate

2) Discount Rate

3) Treasury Bond Rate

4) Corporate Bond Rate

5) Commercial Paper Rate

Hint 2

• Prime Rate-made up of several interest rates, this is a non-fluctuating rate that banks use to offer short-term loans of high dollar amounts. The prime rate is
set by money-center banks as a way to measure and calculate customer interest charges.

• Discount Rate -a short-term (one year or less) risk-free bond issues by the government. They are sold at a price less than its value upon maturity.

• Treasury Bond Rate-long-term bonds, usually between 10-30 years (always at least one year). Interest rates on these bad boys vary, depending on when they mature.

• Corporate Bond Rate-a long-term bond issued by a corporation. Usually a 20 year term, the interest rate on these will depend on their time to maturity and risk classification.

• Commercial Paper Rate-short-term discount bonds (like treasury bills, they are offered at a price below their maturation value), issued by established
corporate borrowers. Commercial bonds mature in six months or less.

Front 3

This is an extra amount of time granted to a party to make a payment

Back 3

Extension

Front 4

What is an Extension?

Back 4

An extension is extra amount of time granted to a party to make a payment.

Extensions requests are submitted by businesses or individuals to the party they owe, and the borrower has power to grant or decline the request. Extra interest is occasionally added on for an extension.

Front 5

A tool designed to help managers and owners monitor the profitability
of their actions

Back 5

Business Budget

Front 6

List the steps for building a successful business budget:

Back 6

1. Choose the periodicity of your budget:

Usually a weekly or monthly timetable is chosen.

2. Make a complete list of all recurring costs during budget period:

Phone lines, web hosting, rent/lease for business space, office equipment, and payroll.

3. Make a list of all one-time payments for the present year:

Large purchases such as computers or annual payments such as a license to operate (depending on the business) are included in this category.

4. Calculate projected earnings:

For a new business, this is difficult. Most organizations create an optimistic, realistic, and pessimistic projected earnings.

5. Build budget based on costs and estimated in decided period:

After costs and earnings have been forecasted, it is possible to build the entire budget. Perhaps a portion of earnings from every period will be channeled into marketing, or be put into production costs.

6. Review your budget on a regular basis:

The more data available, the more accurate the budget will be. Compare the projections with actual results frequently
to improve the accuracy of the budget.

7. Run the business effectively:

With a well thought out budget in place as a financial guide, deciding which projects to undertake and which initiatives to pursue becomes much clearer. Educated business decisions lend to greater success.

Front 7

A purchase made with the use of borrowed money requiring a promise to pay it back on an agreed upon schedule.

Back 7

A loan

Front 8

Name the four characteristics of loans with descriptions:

Back 8

1) Time to maturity

2) Repayment schedule (Intervals or Maturity of contract)

3) Interest.

4) Security. (Collateral)

Hint 8

1) Time to maturity. This is the length of the loan. The only loans
without a time to maturity are revolving credit (a line of credit a bank, for example) or perpetual debt (long-term debt, the cost of building a sports stadium,
for example).

2) Repayment schedule. Payment may be set up at intervals or at the end of the contract. They are typically monthly or semi-annually.

3) Interest. Interest, quite simply, is the cost of borrowing money. The interest rate charged by a lending institution must be able to cover the administrative and operating costs for the institution.

4) Security. Also known as collateral, security is any asset pledged in case payment cannot be made. Sometimes collateral is in the form of a car, Treasury
bond, home or office building, etc.

Front 9

Is the process of transacting business with a financial institution; depositing or withdrawing funds or requesting a loan, etc.

Back 9

Banking

Front 10

Having the ability to borrow the present use of money with a promise to repay it at a later date

Back 10

Credit

Front 11

What is a line of credit?

Back 11

A limited amount of credit they have authorized you to borrow against with your promise to pay back in the future

Front 12

A plan to control income and the advance any type of expenditures

Back 12

Budgeting

Front 13

Name some types of credit

Back 13

Credit
a. The deduction of a payment made by a debtor from an amount due.

b. The right-hand side of an account on which such amounts are
entered.

c. An entry or the sum of the entries on this side.

d. The positive balance or amount remaining in a person's account.

e. A credit line

Front 14

To commit (money or capital) in order to gain a financial return

Back 14

Investing

Front 15

A business establishment in which money is kept for saving or commercial purposes or is invested, supplied for loans, or exchanged

Back 15

Bank

Front 16

The variability of returns from an investment

Back 16

Risk

Front 17

The date on which a financial obligation must be repaid

Back 17

Maturity

Front 18

Asset

Back 18

Assets

a) Entries on a balance sheet showing all properties, including tangible and intangible, and claims against others that may be applied to cover the liabilities of a person or business.

Assets can include cash, stock, inventories, property rights, and goodwill.

b) The entire property owned by a person, can be used toward bankruptcy procedures to settle debts.

Front 19

Liability

Back 19

A financial obligation, debt, claim, or potential loss.

Front 20

Income

Back 20

The amount of money or its equivalent received during a period of
time in exchange for labor or services, from the sale of goods or property, or as
profit from financial investments

Front 21

Cost

Back 21

An amount paid or price required in payment for a purchase.

Front 22

Expense

Back 22

An expenditure of money; a cost

Front 23

An expenditure of money; a cost

Back 23

Debit:

a) An item of debt as recorded in an account.

b) The left-hand side of an account or accounting ledger where
bookkeeping entries are made.

c) An entry of a sum in the left-hand side of an account.

d) The sum of such entries

Front 24

Credit

Back 24

Credit


a. The deduction of a payment made by a debtor from an amount due.

b. The right-hand side of an account on which such amounts are
entered.
c. An entry or the sum of the entries on this side.

d. The positive balance or amount remaining in a person's account.

e. A credit line

Front 25

Net Income

Back 25

The excess of revenues minus all liabilities in a given time period.

Front 26

Balance Sheet

Back 26

A statement of a business or institution that lists the assets, debts, and owners' investment as of a specified date.

Front 27

Income Statement

Back 27

A financial statement that gives operating results for a specific period

Front 28

Cost of Goods Sold

Back 28

Listed on the income statement, as the cost of purchasing raw
materials and manufactured finished products.

Equal to the beginning inventory + (plus) the cost of goods purchased (during a time period) - (minus) the ending inventory.

Front 29

Depreciation

Back 29

An allowance made for a loss in value of property