1. There are many ways an entrepreneur can obtain financing for a new business P
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1. There are many ways an entrepreneur can obtain financing for a new business Please describe each of the items listed below a. Define factoring as it pertains to Entrepreneurial finance. 3 pts. b. Explain when factoring might be a more appropriate source of financing than a bank loan. Give more than one reason. 4 pts. An entrepreneur has just been given a large purchase order from one of the big retail chains but they do not have sufficient funds to purchase the raw materials needed to produce their good in greater quantities. What type of financing is probably the most appropriate for this situation? Explain your answer. 4 pts. c. d. Another entrepreneur has just made a deal with an Angel investor to obtain $150,000 in financing in exchange for 25% of the business. At what stages of growth of a business is this company most likely in? Explain. 4 pts e. Originally, the entrepreneur thought they could strike a deal with an Angel investor to obtain the S 150,000 for 20% of the business but the Angel backed out because of their concern that the business had too high of a customer acquisition cost. Define what the customer acquisition cost is. 3Explanation / Answer
a. if a business sells its debts to third parties, it is called as factoring. for example, a banker had given loan to Mr A of some amount but he failed to repay. The loan canbe sell to third party by banker by collecting some fund from the third party.
b. as I said above, the debts are nothing but receivables to the company, but the borrowers are not paid till. Hence, instead of going to a banker, provide security, pay additional interest, it is better to sell the receivables to third party and raise funds. Even if the bill is sold at discount to the third party (Factor), it is no problem to the firm. The firm can fulfill their obligations and financial needs by doing this.
c. the producer may purchase material on credit basis, a little amount is paid now and the remaining amount can be paid later installment wise. or, the entrepreneur may go with short term (bridge financing) financing from a banker or other financial institution. or there may be funding companies, who provide funds at higher rate of interest, so, the producer can assess all these and may select any one of these.
d. paying 25% cost on return is more problem to the entrepreneur. it declines the net profit much down to the producer. instead of going to borrowing at 20%, it is better to go with any alternative at lesser cost, like factoring, short term unsecured loan from banker, credit purchases etc.
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