Chapter 5 - Business Loans - Part 1
Chapter 5 - Business Loans - Part 1
Chapter 5 - Business Loans - Part 1
Short- Long-
term term
Chapter 5: Lending to business firms and pricing business loans 4
Self-
liquidating
inventory
loans
Working
capital loans
Interim
construction
financing
Security
dealer
financing
Retailer and
equipment
Chapter 5: Lending to business firms and pricing business loans
financing
Asset-based
loans
Short-term Business Loans
Short-term Business Loans
Syndicated
5
loans
Self-Liquidating Inventory Loans
• Used to finance the purchase of inventory
• Take advantage of the normal cash cycle
inside a business firm
• Peak seasons !
• <90 days
- Account receivable
- Inventories
Chapter 5: Lending to business firms and pricing business loans 7
Cash Conversion Cycle (CCC)
• Vinamilk collects its receivables on average
every 35 days
• Its inventory turnover is every 45 days,
• it pays suppliers on average every 32 days.
• Its cash conversion cycle is 48 days.
• If its annual sales were $6 million with a
40% gross profit generated, then they would
need a working capital of $473,425.
• Assuming $200,000 in non-financed
working capital already exists, a reasonable
line of credit request would be $273,425.
[Annual sales x Cost of goods sold x CCC]
Working capital required =
𝟑𝟔𝟓 𝒅𝒂𝒚𝒔
Chapter 5: Lending to business firms and pricing business loans 8
DBS Working Capital Loans
length of time before a proposed project will generate positive cash flow
Large Interest
amounts of Long- rates may
funds term change
project
loans
Chapter 5: Lending to business firms and pricing business loans 27
M&A Loans