FINANCING BASICS COURSE
LESSON 3
DEBT FINANCING
BEFORE WE GO INTO DETAILS, HERE IS FIRST OF ALL A DEFFINITION OF DEBT FINANCING:
DEBT FINANCING OCCURS
when a company raises money by selling debt instruments, most commonly in the form of bank loans or bonds
(Debt Financing – Overview, Options, Pros and Cons)
AS YOU AND YOUR MICRO AND SMALL BUSINESS WILL HARDLY ISSUE A BOND TO FINANCE EITHER AN EXPANSION OR RAISE MONEY TO PAY OUTSTANDING BILLS, YOU WILL SURELY TAE A BANK LOAN OR A LOAN FROM A RELATIVE OR A FRIEND. ALTHOUGH A LOAN FROM A RELATIVE OR A FRIEND MIGHT BE LOOKING AS NOT SO FORMAL, IT IS ADVISABLE TO USE THE SAME METHOD AS IF YOU TAKE A BANK LOAN. ALWAYS IMAGINE THAT ANY DISPUTE OVER THE LOAN CAN AFFECT YOUR RELATIONSHIP SERIOUSLY.
AS THE BANK WILL PRESENT YOU WITH A FORMALISED LOAN APPLICATION WHICH YOU CAN’T CHANGE, WE WILL FOLLOWING LOOK AT THE BASICS OF A LOAN AGREEMENT.
FIRST OF ALL, ANY AGREEMENT CONCERNING A LOAN MUST ALWAYS BE IN WRITING (KEEP IN MIND THAT YOU CAN ONLY CHANGEA WRITTEN AGREEMENT ALSO BY WRITING, AND AGREED UPON BY ALL PARTIES TO THE ORIGINAL AGREEMENT). A WRITTEN LOAN AGREEMENT MUST HAVE THE FOLLOWING CONTENT AS A MINIMUM:
- THE COMPLETE NAMES AND ADDRESSES OF THE PARTIES TO THE AGREEMENT;
- THE AMOUNT THAT IS GIVEN TO THE ONE WHO TAKES THE LOAN, AND WO GIVES THE LOAN;
- THE PURPOSE FOR WHICH THE LOAN IS GIVEN;
- THE INTEREST RATE PER YEAR THAT HAS TO BE PAID FOR THE LOAN;
- HOW THE LOAN SHALL BE REPAID (MONTHLY RATES, ETC.), AND UNTIL WHEN;
- WHICH COLLATERAL IS GIVEN FOR THE LOAN, IF ANY;
- WHAT SHALL HAPPEN IF THE LOAN IS NOT REPAID IN TIME, OR MONTHLY RATES ON THE LOAN ARE NOT PAID.
THE LOAN AGREEMENT MUST BE SIGNED BY ALL PARTIES TO THE AGREEMENT, AND, IF THERE ARE ANY, BY WITNESSES TO THE SIGNING. SAMPLES OF THE SIGNED AGREEMENT MUST BE GIVEN TO ALL PARTIES TO THE AGREEMENT, AND, IF APLLICABLE, TO THE WITNESSES.
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF DEBT FINANCING?
