Question

1. Forecasting
2. Sources of capital SBA loans
3. 5 Cs of borrowing (Credit, Collateral, etc.)

Answer 1

Forecasting:

Financial forecasting is a method to estimate the financial performance of the company in future. The most common method is analyzing a Income statement. Here, we consider the Revenue, Gross Profit and Earnings before Interest and Taxes.

Firstly, we need to forecast the Revenue which must be realistic and with high degree of precision. For example, retail company must consider the expansion rate and income per sq. m.. On the other hand Telecom company will consider the market share to predict the revenue. We must consider historical figures and trends for revenue projection.

Secondly, we must forecast the Gross profit considering the historical figures of Cost of goods sold in terms of percentage.

At last, we need to project the overhead expenses like Sales, General and Administration Expenses to arrive at Operating margin.

Sources of Capital SBA loans:

SBA loans are the business loans with various programs to every type of business purpose guaranteed by the Small Business Administration. This government agency guarantees almost 85% of the loan amount. It provides loan through the SBA approved lender which is usually a bank.

5 Cs of borrowing:

1. Capital: Capital is the amount of money invested in the business. Lenders are interested and willing to provide loans to the individuals who invest their own money in the business in the form of capital. As most lenders are not willing to take 100% financial risk.
2. Character: Banks or lender usually check and analyse the borrower's credit worthiness and identity before lending the loan. The main purpose is to lower the degree of default borrowers.
3. Capacity: Capacity means borrower's ability to repay the loan. For this banks analyse the nature of the business to generate enough revenue to repay the loan.
4. Conditions: It means analyzing the business environment that whether the business can survive in various economic conditions or industry factors.
5. Collateral: Collateral is an asset kept by the lender as a security in case the borrower gets default in repaying the loan.