Sourcing Capital For Business Expansiony

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 1

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION

By students’ Name

Critical Thinking: Sourcing Capital for Business Expansion

Professor’s Name

University’s Name

City, State

Date

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 2

Critical Thinking: sourcing capital for business expansion

Assets securitisation

Obay, (2014) defines assets securitization as the packaging of firm’s

illiquid assets as financial security thus allowing the firm to access greater sources funding.

Printers Ltd can thus use this source to obtain the $2.5 million it needs for its intended

expansion.

In asset securitization, the company’s assets are insured against auction even during times of

financial challenges and this is an assurance of safety against possible auction to printers Ltd

thus reducing the level of risk in the firm (Classen, 2017, 14).

Asset securitization allows the use of copyright and patents to raise the credit

worthiness of a firm. Thus printers can use intangible assets to secure the intended $2.5 since

printers Ltd has no problem in using p the premise to obtain a loan (Samuel, 2016, 14).

Asset securitization allows business owner of a firm to retain their undiluted influence

and control over business since the firm converts its own assets into finance. Since printers

Ltd do not intend to lose the degree of their control over the firm, then this is a good source

of capital.

However, assets securitization is not the best source of capital for Printer’s Ltd since:

It may be expensive if Printers would later want to take back its assets and close the special

purpose vehicle (SPV) (Classen, 2017, 18). Printers Ltd can overcome this drawback by

strategically utilizing the capital and maintaining a write-off account for the assets (Classen,

2017, 18).

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 3

The source may also restrict the ability of Printer’s Ltd to raise higher capital later as

it divide the credit worthiness of the firm by taking some of its assets (Classen, 2017, 12).

Printers Ltd can improve leverage ratios to avoid the disadvantage.

Although it’s cheaper than share flotation, sometimes it is expensive, complicated and

long process of generating capital (Samuel, 2016, 13). Printers Ltd can remedy the challenge

by only by opting to use other sources.

A Commercial Loan

Samuel, (2016) argued that a commercial loan is a repayable capital funding by

financial institution to a firm, subject to interest rates. A commercial loan offers the lowest

interest rates of all loan options thus; it can enable printers Ltd to maintain lower overhead

costs. This will enable Printers to avoid high level of risks and ensure low cost of capital as it

intends.

A commercial loan is an external injection into financial investment base of a firm.

Unlike equity capital which is a conversion of existing investment, a commercial loan will

help expand the capital base of Printers limited and therefore a potential source of capital for

the firm (Samuel, 2016, 16).

A commercial loan offers a low interest rate which is good for printed ltd because

they can get the fund there needed for expansion and still maintain a low gearing level

(Samuel, 2016, 13). And with commercial loan, you can keep total ownership of the company

thus printed ltd will not be losing its ownership and control if they use this source (Samuel,

2016, 16).

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 4

However, Printers have already another loan and taking another loan before full

repayment o the first one is an added duty to the firm (Morgan, and Morphis, 2017, 315).

This challenge can be remedied by facilitating a quick repayment of the first loan. However,

Printer’s do not have retained earnings to facilitate it.

In most cases, the commercial loan is secured using a collateral asset. Although

Printers is willing to use its premise to finance the firm, the firm may later lose its assets used

as collateral in case of loan default (Brown, 2016, 16). To overcome this challenge, Printers

may take insurance cover against such loss of assets.

A commercial loan is borrowed capital and may make a firm to lose a degree of

control of the firm until the payment of the last installment (Brown, 2016, 8). This challenge

can be remedied through taking a short-term loan instead of long-term loan.

A commercial loan will cause the company to have a high financial leverage which

can increase the company gearing ratio overtime because printed ltd already have a previous

bank debt there are still paying (Brown, 2016, 13). But printed ltd can overcome this high

financial leverage by reducing its working capital or the company can convert its loan to

shares in the company buy negotiating with leaders (Brown, 2016, 12).

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 5

Venture Capital

According to Samuel, (2016), venture capital is private equity that finance a first

growing business in exchange to shared management and shared benefits. Venture capital

provides both the finance needed and the financial consultancy for business decisions, and

management courses. Since Printers is intending to expand its services, it can obtain financial

and management consultancy to grow the injected capital. This will enable printers to

Increase profit and reduce working capital.

Venture capital providers can also offer legal, tax and active support in management

solution thus enabling faster realization of strategic goals (Brown, 2016, 6). Printers can thus

be able to manage its new tax, and other legal obligation easily thus smooth growth.

Venture capital will make printer’s Ltd. More connected to the wider business

community and thus the tremendous benefits related to connectivity (Brown, 2016, 7). Since

Printers Ltd intended to promote its reputation, this connectivity is thus important.

However, as a form of private equity source of capital, venture capital is not the best

choice for printer’s Ltd. since venture financiers get the right to take part in management and

influence the control of a firm. The owners of printer’s Ltd. are not willing to lose any ratio

of control over the business (Solongo, 2017, 141). This challenge cannot be avoided unless

by avoiding the venture capital sources. As long as there is the use of venture capital, the

control over business is shared definitely according to the ratio of VC to the original owners.

Venture capital brings new management strategies, new structure of authority and

creates the need for change management in the firm. This can influence the overall

performance of Printers ltd and its general reputation. Unfavorable change management or

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 6

dilution of reputation can lead to undesired results. Printers have the priority to protect its

reputation. This challenge can be solved by maintaining a below 50% venture funding

(Samuel, 2016, 6).

.It is not advisable for printer’s ltd. to enter into venture funding since it has another

payable loan. This is because it may be hard to obtain venture funders when the business has

another loan (Samuel, 2016, 12).

. This challenge can be avoided by waiting to complete the first loan before getting

into venture funding.

Preference Shares

Solongo, (2017) defined preferential share capital shares of a company's stock. Preferential

shares are not distressful since they are paid with arrears without any obligation to pay the

dividend. Preferential shareholders wait for the redemption of the profits and can even be

sorted through the assurance of other units of shares (Solongo, 2017, 145). This will enable

Printer’s Ltd. to continue repaying its already existing loan debt without much pressure.

Preferential shareholders do not dilute the control of ownership. The shares do not manipulate

or interfere with the decision making the process as the firm is not legally obligated to repay

the shareholder in divided. This will help printer’s ltd to maintain its control, since preference

shareholders do not vote in for agendas in the firm (Solongo, 2017 145).

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 7

Preferential share increase the creditworthiness of a firm as they are considered part of the

capital (Solongo, 2017, 144). Since printer’s ltd. have another loan and aims at maintaining

its financial reputation. This is a preferable source of capital.

However, the preference shares are considered as a part of the business capital and thus the

preference shares are not a subject to tax deduction. This will make the capital relatively

expensive for printer’s Ltd. as compared to debt interest (Solongo, 2017, 145). This challenge

can be avoided by opting to obtain capital from other sources rather than preference shares.

Printers Ltd have to be cautious and more strategic since the preference can acquire the

voting rights and thus dilute the control of the owners in case the firm skips paying the

preference divided for specified times consecutively (Solongo, 2017,145)

These challenge of increased debt burden can be avoided since, printer’s ltd. can manage to

control the size of preference shares it requires to reduce the size of influence (Samuel, 2016,

6). Also, printer Ltd. does not hope to wind up any soon. For this reason, I am convinced that

preferential share is the best source of capital for Printed Ltd.

Recommendation

Among the above-discussed sources of capital, I would prefer the use of preference

shares to finance printer’s ltd. Since the firm has already used up its business retained

earnings and the owners are not willing to source the capital for the expansion of their

business themselves, then all the sourcing must be done from external sources. Preference

shareholders will provide capital as per the need of the business owners and in the control of

the firm’s decision makers. The shares will not dilute the control of the firm as one of the

desired principles. Further, the preference shareholders will be redeemed in the case of profit

sharing and will not make obligation for the firm to repay the amount. There is no such

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 8

pressure of monthly installment like in the case of a commercial loan. Although preference

shares increase the tax burden, they similarly increase the creditworthiness of a firm as they

are considered part of the capital. These few advantages convince me that preference shares

are the best source of capital for the expansion of printers limited.

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION: 9

References

1. Gambetti, L. and Musso, A., 2017. Loan supply shocks and the business

cycle. Journal of Applied Econometrics, 32(4), pp.764-782.

2. Biondi, Y. and Graeff, I., 2017, December. Rethinking bank shareholder equity: The

case of Deutsche Bank. In Accounting Forum (Vol. 41, No. 4, pp. 318-335). Elsevier.

3. Glushkov, D., Khorana, A. and Rau, P.R., 2015. Why Do Firms Go Public through

Debt Instead of Equity?.

4. Mikami, K., 2015. Raising capital by issuing transferable membership in a consumer

cooperative. International Journal of Social Economics, 42(2), pp.132-142.

5. Campello, M. and Saffi, P.A., 2015. The rise of the equity lending market:

Implications for corporate financial policies.

6. Berisha, E., Meszaros, J. and Olson, E., 2018. Income inequality, equities, household

debt, and interest rates: Evidence from a century of data. Journal of International

Money and Finance, 80, pp.1-14.

7. Lim, J., Schwert, M.W. and Weisbach, M.S., 2017. The Economics of PIPEs (No.

w23967). National Bureau of Economic Research.

8. McLean, R.D., Pontiff, J. and Zhao, M., 2016. Equity Market Liberalization in

Emerging Markets: A Contrarian View.

9. Ibrahim, D.M., 2015. Equity Crowdfunding: A Market for Lemons. Minn. L.

Rev., 100, p.561.

10. Gornall, W. and Strebulaev, I.A., 2017. Squaring venture capital valuations with

reality (No. w23895). National Bureau of Economic Research.

11. Naser, K., Al-Mutairi, A., Al Kandari, A. and Nuseibeh, R., 2015. Cogency of Capital

Structure Theories to an Islamic Country: Empirical Evidence from the Kuwaiti

Banks. International Journal of Economics and Financial Issues, 5(4).

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION:

12. Mills, K. and McCarthy, B., 2014. The state of small business lending: Credit access

during the recovery and how technology may change the game.

13. Morgan, J.Q. and Morphis, C., 2017. Defining success in business retention and

expansion: What do economic development organizations measure and

why?. Community Development, 48(2), pp.299-316.

14. Boutilier, R., 2017. Stakeholder politics: Social capital, sustainable development, and

the corporation. Routledge.

15. De Leon, A.L., 2016. A Preference for Preferred Shares. Philippine Management

Review, 1(1).

16. Creamer, D.B., Dobrovolsky, S.B. and Borenstein, I., 2015. Capital in Manufacturing

and Mining: Its Formation and Financing. Princeton University Press.

17. Brea‐Solís, H., Casadesus‐Masanell, R. and Grifell‐Tatjé, E., 2015. Business model

evaluation: quantifying Walmart's sources of advantage. Strategic Entrepreneurship

Journal, 9(1), pp.12-33.

18. Brown, R.A., 2016. Capital and entrepreneurship in South-east Asia. Springer.

19. De Visscher, F.M., 2016. Financing transitions: Managing capital and liquidity in the

family business. Springer.

20. Chernenko, S., Lerner, J. and Zeng, Y., 2017. Mutual funds as venture capitalists?

Evidence from unicorns (No. w23981). National Bureau of Economic Research.

21. Kavussanos, M.G., Visvikis, I.D. and Alexopoulos, I., 2017. Managing Financial

Resources in Shipping. In Shipping Operations Management (pp. 153-175). Springer,

Cham.

22. Watson, L., 2015. What's the deal with preference shares?: investment

insights. Personal Finance Newsletter, 2015(414), pp.8-9.

CRITICAL THINKING: SOURCING CAPITAL FOR BUSINESS EXPANSION:

23. Skirnevskiy, V., Bendig, D. and Brettel, M., 2017. The influence of internal social

capital on serial creators’ success in crowdfunding. Entrepreneurship Theory and

Practice, 41(2), pp.209-236.

24. Classen, J.B., 2017. Financial method pertaining to borrowing of shares of equity by

the issuer of the equity. U.S. Patent Application 15/326,835.

25. Samuel, D.K., 2016. Effects of capital structure on financial performance of

commercial banks in Kenya (Doctoral dissertation).

26. Campbell, G., Turner, J.D. and Ye, Q., 2017. The liquidity of the London capital

markets, 1825–70. The Economic History Review.

27. Gandhi, D.S., 2015. Role of equity: an instrument for economic

development. International Journal of Advanced Research in Management and Social

Sciences, 4(3), pp.62-73.

28. Rizvi, S.A.R., Bacha, O.I. and Mirakhor, A., 2016. Public Finance and Islamic

Capital Markets: Theory and Application. Springer.

29. Solongo, G., 2017. Financial Resources Management for SMES of

Mongolia. International Business Research, 10(6), p.145.

30. Obay, L. (2014). Financial innovation in the banking industry: the case of asset

securitization. Routledge.

Place new order. It's free, fast and safe

Paper type

Deadline

Page count

550 words

Total price: $ 15.00

Our customers say

Jeff Curtis

USA, Student

"I'm fully satisfied with the essay I've just received. When I read it, I felt like it was exactly what I wanted to say, but couldn’t find the necessary words. Thank you!"

Ian McGregor

UK, Student

"I don’t know what I would do without your assistance! With your help, I met my deadline just in time and the work was very professional. I will be back in several days with another assignment!"

Shannon Williams

Canada, Student

"It was the perfect experience! I enjoyed working with my writer, he delivered my work on time and followed all the guidelines about the referencing and contents."

Sourcing Capital for Business Expansiony

Place new order. It's free, fast and safe

Our customers say

Jeff Curtis

Ian McGregor

Shannon Williams