Masters in finance Assignment PDF

Running head: MASTERS IN FINANCE
Masters in finance
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Name of university
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1MASTERS IN FINANCE
Advantages and shortcomings of alternative financing tools
Various financing tools available to Khayelitsha Cookies and their advantages and
shortcomings are as follows –
Bank loan – bank loan is the amount borrowed for the set period within the agreed schedule
of repayment. However, the amount of repayment depends on the duration and size of loan
and interest rate. Many of the businesses utilise bank loans as suitable part of financial
structure. In reality, the bank loans are available for growing and well-established businesses
rather than the start-up one. The reason behind this is the risk factor. Banks prefer to provide
the loan to the businesses with established profitability track record as it will enable them to
make the repayment with interest on time (Greenbaum, Thakor & Boot, 2015). If the fund is
obtained through bank loan Khayelitsha Cookies can achieve the following advantages –
 The business will be guaranteed the amount for certain period of the time that is
generally 3 to 4 years
 Loans can be matched with the lifetime of equipment or other assets for which the
loan will be taken for
 Rate of interest will be fixed that will enable the company to forecast the payments for
interest.
 As the bank loan is offered in exchange of interest payment, the company is not
required to provide the business share in exchange of the loan (Rostamkalaei & Freel,
2016).
However, various disadvantages associated with bank loan are as follows –
 Security – bank loan requires security that is generally provided to bank over the
business assets. In case of business failure bank has the 1st call on the asset left with
the company. As Khayelitsha Cookies is already running in loss if it raises through
bank loan in case of liquidation shareholders will be hardly left with any amount.
 Cash flow problem – the company may face issues in monthly repayments if the
customers do not pay the amount in time, which in turn lead to cash flow issues for the
company (Rostamkalaei & Freel, 2016).
Social venture capital – the main objective of social venture capital is to invest in companies
in socially responsible approach those are looking for providing real changes in social aspect.
It generally focuses on the companies that focus on resolving the social and environmental