BUS-101 Lecture Notes - Lecture 41: Commercial Paper, Accounts Payable, Retained Earnings

• School: University of Tampa
• Department: Business
• Course: BUS-101
• Professor: Jill Misuraca

Document Summary

Equity vs. debt financing through borrowings: debt financing: Have to repay the principle (initial amount borrowed) and interest (a percent. Collateral = if the borrower does not repay one of these secure loans, the collateral (asset) may be seized. Unsecured loans = no assets are pledged as collateral. The lender is comfortable in the borrowers ability to repay. One of the most common and convenient forms of debt financing are accounts payable (trade credit) Commercial banks offer short-term lines of credit, used to fund temporary or seasonal capital needs of a firm. Commercial finance companies are lenders that specialize in making short- term loans to firms who cannot receive lines of credit (secured loans with inventory as collateral) Higher risk means higher rate of interest. Accounts receivables can be pledged as assets as collateral for a short-term loan. Factoring involves selling accounts receivables to a specialized lender (at a discount) that is then responsible for collecting them.