Where would you suggest Andy look for the financing he needs for Custom Stitches?.
I would suggest Andy to look for debt financing, because it involves the funds that the small business owners borrows and must repay with interest. Since this case is not about starting a business, so the equity financing will not apply for Andy. This financing is for growth for Custom Stitches so the sources of debt financing will apply for this case. Andy should identify the reasons for debt financing before borrowing money. Purchasing new equipment can improve productivity, increase quality, and lower operating expenses often takes more capital than a growing company can generate internally. As Custom Stitches become more established, Andy can negotiate more favorable borrowing terms compared to their start-up days. Replacing high interest loans with loans carrying lower interest rates can improve cash flow significantly. .
For finding financial for debt financing, Andy should consider following sources:.
A. Commercial Banks.
B. Trade Credit.
C. Equipment Suppliers.
D. Commercial Financing Company.
E. Savings and Loan Associations.
F. Stock Brokers.
G. Insurance Companies.
H. Small Business Investment Companies.
I. Small Business lending Companies.
2. Explain the advantages and disadvantages of using each source of funding you listed in question 1?.
Commercial Bank- They offers the greatest variety of loans. They are conservative lenders. Typical short term bank loans in commercial loans. Line of credit, discounting accounts receivable, inventory financing, and floor planning.
Trade Credit- This used extensively by the small business as a source of financing. Vendors and suppliers commonly finance sales to business for 30 to 90 days.
Equipment Suppliers- They offer small business financing similar to trade credit, but with slightly different forms.
Commercial Finance companies- They offer many of the same types of loans that bank does, but they are more risk oriented in their lending practices.
