INTERMEDIATE-TERM

FINANCING
•Refers to loans that will mature in
more than one year but in less than
ten years
•Mostly allotted for asset expansion
and medium-term projects and
programs
•ADVANTAGES

1. Acquisition of assets that would

otherwise be hard to finance using
short-term loans or when internal
funds are not sufficient.
2. Provides smaller firms access to
funds
3. The process involved in the raising of
funds through intermediate-term is
not as regulated as in the process of
raising funds through bonds or stocks
in the capital markets.
4. Interest paid on loans is tax
deductible.
5. It is typical easier to structure
intermediate-term loans. The size of the
funds and repayment schedule allow
firms to be flexible in the way they
devote funds to asset acquisition and to
projects or programs.
•PROVIDERS OF
INTERMEDIATE-TERM FUNDS

1. Commercial Banks
Term Loan is granted to borrowers
to be repaid within a specific period.The
borrower is normally required to make
regular periodic payments.
 THREE TYPES OF TERM LOANS

•Straight-term Loan
used by firms to finance the acquisition
of fixed assets, additional funds for
working capital, and repayment of other
obligations
maximum of 10 years
THREE TYPES OF TERM LOANS

•Credit Line
Also referred to as line of credit
An agreement between a bank and a
borrower which indicates the maximum
amount of loan that may be granted by
the bank for a specified period of time
THREE TYPES OF TERM LOANS

•Revolving Credit Agreement

a committed line of credit extended by
a bank to a borrower
the borrower is required to pay an
annual fee which is a percentage of the
amount committed by the bank
2. Insurance Companies
3. Finance Companies
• Additional Capital
• Purchase or upgrade of machineries or
equipment
• Construction
• Payment of the shares
• Purchasing competing firms or firms with
different line of business
4. Government
• A sizeable portion of the national
budget has to be allocated to
intermediate loans for firms
• Republic Act 9501 requires banks and
lending institutions to allocate 10% of
the funds allotted for loans for micro,
small and medium enterprises
(MSMEs)
LONG-TERM
FINANCING
• Tapped by firms to fund their long-term
capital requirements
• Acquisition of machineries and equipment
• Acquisition of furniture and fixtures
• Building a new plant
• Major upgrade of facilities
• Acquisition of an existing firms
• Organize a new venture or additional
strategic business units
STOCK FINANCING
• Sale of stocks for the firm to raise
long-term funds
• Advantages
• Do not mature
• Do not require payment of
interest
• Do not require any colateral
Types of Corporate Stock
• Common stock - corporate stocks
that are issued by all corporations
- last ones paid out
- 5 VARIETIES
Classified Guaranteed Deferred Stock
Common Stock Debenture Stock
Voting Trust Certificate
• Preferred stock – fixed dividends are paid
- may be issued several times
- 2 TYPES
Cumulative Noncumulative
- Do not have the right to vote BUT if the
corporation fails to pay a specified number
of accumulated dividends, they are given the
right to participate in the annual election of
directors
 - Some have the right to subscribe
additional issues of stocks (preemptive right)
- Callable Preferred Stock, those stocks that
may be bought by the issuing firm at a
stated call price
- Convertibility Feature, stocks that can be
converted into common shares
 Stocks have two values.
Book Value
– the stated value as reflected in a firm’s
balance sheet
Market Value
– the value of the stock when is being
traded in the stock exchange
CORPORATE BONDS
• Either by a firm or by a
government
• A bond issued to raise funds
for long-term projects and
programs
• May be issued through
• Public offering – bonds are issued
to the investing public through
investment bankers
• Private Placements – bonds are
sold directly to a financial
institution
CLASSES OF BONDS
• DEBENTURES – bonds that are not
secured by a specific property
• MORTGAGE BONDS – bonds secured
by a lien on a specific properties such
as real estate, plant and equipment
and other fixed assets
• ASSUMED BONDS – bonds that
are from the deceased entity
• GUARANTEED BONDS – bonds in
which the payment of the
principal and the interest is
guaranteed by one or more
individuals or corporations
• JOINT BONDS – bonds wherein the
property that is being used as security
is jointly owned by two different
companies (Joint-debtors)
• COUPON BONDS – post-dated
certificates (coupons) on the interest
payments during the life of the bond
are issued to the bearer
• REGISTERED BONDS – bonds wherein
the names of the bond owners are
recorded in the transfer books of the
firm
• INCOME BONDS – a fixed rate of
interest is paid but only if the firm has
earnings declared by the board of
directors
• PARTICIPATING BONDS – fixed coupon
rate and additional income (corporate
earnings declared by the board of
directors)
• INCOME BONDS – a fixed rate of
interest is paid but only if the firm has
earnings declared by the board of
directors
• CONVERTIBLE BONDS – debenture
bonds that may be converted to
shares of common or preferred
stocks
• BONDS with WARRANT – warrant is a
right to purchase a stock at a stated
price
• BONDS with A JUNIOR SECURITY
ATTACHED – bonds that are issued along
with some shares of stocks
• SERIAL BONDS – bonds mature in series,
thus, payments are also scheduled
accordingly
• CALLABLE BONDS – the issuing firm may
“call” or cancel the bonds and issue
payment prior to its maturity
• PERPETUAL BONDS – bonds that can
only be used by the government
which is assumed to have a
permanent existence
• SINKING FUNDS BONDS – bonds
which may be paid through periodic
payments by setting up a sinking
funds.
 STOCKS VS BONDS
• When a firm sells bonds to the investing
public, it means that it will owe money
to the investors. With stocks, the
investors become co-owners of the
firm.
• In the event of liquidation, holders of
bonds are prioritized over stockholders.
 STOCKS VS BONDS
• Interest payments on bonds are fixed
while dividends paid to stockholders
depend on the firm’s earnings.
• Bonds have a fixed maturity date.
Stocks do not have a maturity date.
• Owners of bonds do not have voting
rights.
 THE 5C’s of CREDIT
• Evaluation of credit
worthiness of potential clients
1. Character – applicant’s reputation
2. Capacity – one’s capacity to pay
3. Capital (Equity) – minimizes the risk
of default (down payment)
 THE 5C’s of CREDIT
• Evaluation of credit
worthiness of potential clients
4. Collateral – property that is used to
secure the loan
5. Conditions of the Loan – Principal
amount, interest rate, terms of payments