Discussion

1. Can lack of ability and experience of small firm owners be corrected solely by their adopting another legal form of organization for the business?

2. Evaluate “ease of discontinuance” as an advantage of the proprietorship form of legal organization.

3. Is the owner of a small corporation as “free to make all decisions” as a single proprietor? Explain.

4. Explain your understanding of what the term “unlimited liability” means to owners of small firms?

Unit 6. Sources of financing for a new small firm

Assignment 1. Learn the following terms:

run a business equity capital debt capital fixed capital real estate cash on hand accounts receivable turn into cash short-term capital borrowed capital long-term capital source inherit commercial bank loans mortgage loans venture personal savings would-be owner encourage supply loans to smb business dealings secure a mortgage rental payment aid guaranteed loan refer equity debt capital potential creditors deferred share deferred ordinary share security for a loan pledge property mortgage property

руководить предприятием собственный капитал (в форме акций) привлеченный капитал основной капитал недвижимое имущество, недвижимость наличность кассы дебиторская задолженность; счета дебиторов; дебиторы по расчетам превратить в наличность краткосрочный капитал заемный капитал долгосрочный капитал источник наследовать, унаследовать ссуда коммерческого банка ссуда под недвижимость рисковать; рискованное предприятие или начинание личные сбережения (накопления) предполагаемый владелец поддерживать, поощрять снабжать ссудой к.-л. коммерческие сделки получать ссуду под залог арендная плата помогать; помощь гарантированная ссуда ссылаться, указывать акционерный капитал привлеченный капитал потенциальные кредиторы акция с отсроченным дивидендом обыкновенная акция с отсроченным дивидендом обеспечение по ссуде закладывать собственность в залог получать ссуду под залог недвижимости

Assignment 2. Practice the pronunciation of the following words:

equity, debt, item, estate, fixture, merchandise, utilities, financing, intermediate, source, to inherit, relatives, commercial, mortgage, to venture, entrepreneur, through, potential, to be sure, to encourage, to supply, to avoid, subsequent, basis, to view, to secure, agency, to organize, to aid, to guarantee, educational, consulting, individual, promising.

Assignment 3. Read and translate the text:

TEXT

The capital of a business consists of those funds used to start and run the business. The funds may be either the owner’s (equity capital) or creditor’s (debt capital). Capital is also classified, depending on its use, as fixed or working.

Fixed capital refers to items bought once and used for a long period of time. These items include real estate, fixtures, and equipment.

Working capital refers to the funds used to keep a business working or operating. It pays for merchandise, inventory and operating expenses such as rent, utilities (light and heat), taxes and wages. Cash on hand and accounts receivable are also considered working capital. Therefore, working capital is cash or anything that can be easily and quickly turned into cash.

No firm should ever be started without a clear and positive understanding of where its total capital needs are coming from. The various types of financing available to business firms are usually classified as:

1. Short-term capital. This is borrowed capital that is to be repaid within one year.

2. Intermediate capital. This is borrowed capital that is to be repaid in one to five years.

3. Long-term capital. This is capital whose repayment is arranged for more than five years in the future.

Sources of funds for small firms: Equity capital. Personal funds – saved or inherited. Loans from relatives and friends. Commercial bank loans. Mortgage loans. The Small Business Administration. Venture capitalists.

Equity capital consists of those funds provided to the business by the owners. These funds come from the personal savings of the small business entrepreneur. If the entrepreneur decides to obtain more funds through equity sources, it can be done by having partners or selling stock. When these sources are used, however, the small business entrepreneur gives up some ownership control of the business and shares the profits.

Personal funds. Whenever potential creditors, partners or stockholders are invited to invest in or lend financial assistance to a new firm, their first question is, “How much does the owner have invested?” Every business contains an element of risk and outsiders who invest in a new firm wish to be sure that such risk is shared by the owner. It is important that the would-be owners have assets of their own to invest in the firm. The closer they are to 50 percent of the total capital needs that can be provided, the greater will be their independence and share of net profits.

Loans from relatives and friends. Many new owners are encouraged in their enterprise by parents, relatives or friends who offer to supply loans to the firm to get it started. The best way to avoid subsequent problems is to make sure that loans are made on a businesslike basis. They should be viewed as business dealings. The right of the owner to make decisions should be respected by all parties involved.

Commercial bank loans. The commercial bank is one of the main sources of short-term loans. Commercial bank loans are usually for short periods of time (less than one year), but many banks lend money for longer periods. The interest on a commercial bank loan is higher than many other sources. The business owner should establish a credit line with a commercial bank. A credit line means that the bank agrees to lend the business owner an amount of money, to a stated maximum, at any time.

Mortgage loans. If the new firm planners own a commercial building, they can usually secure a mortgage on it with payments over as many as 30 years. It may be the building in which the new firm operates. In that case, the planners will be making mortgage payments instead of rental payments to a landlord.

The small business administration is a US government agency organised to aid small business in many ways. This agency offers small businesses financial aid in the form of guaranteed loans and advice about where financial aid can be obtained. The SBA also offers educational aids and consulting services.

Venture capitalists. This is a term used to refer individuals or corporations which invest long-term equity and debt capital in promising start-up and growing businesses. Venture capitalists usually take some equity (ownership) in the firms for which they provide funding. Many venture capitalists only invest in firms that need $100,000 or more financing.

Notes to the text:

1. either … or – или … или

2. depending on – в зависимости от

3. such as – такой как

4. to lend financial assistance – предоставлять финансовую помощь

5. the closer … the greater – чем ближе, тем лучше

6. to get started – начинать, начать

7. to avoid subsequent problems – избежать последующих проблем

8. to make sure – убедиться, удостовериться

9. to establish a credit line – установить кредитную линию

10. to lend smb an amount of money – давать взаймы кому-л. сумму денег

Assignment 4. Answer the following questions:

1. How is capital classified?

2. What does fixed capital refer to?

3. What does working capital refer to?

4. How are the types of financing classified?

5. What can you say about sources of funds for small firms?

6. What funds does equity capital consist of?

7. Why are potential creditors interested in how much the owner has invested?

8. What is the best way to avoid subsequent problems when your friends offer to supply loans to the firm?

9. What is one of the main sources of short-term loans?

10. What aid does the SBA offer?

11. What firms do venture capitalists invest in?

Assignment 5. Fill in the gaps with the words and expressions from the text.

1. … … refers to items bought once and used for a long period of time.

2. … on hand and … … are also considered working capital.

3. … … consists of those funds provided to the business by the owners.

4. If the … decides to obtain more funds through equity sources, it can be done by having partners or … … .

5. It is important that the … … have … of their own to invest in the firm.

6. Commercial bank … are usually for short periods of time (less than one year), but many banks … … for longer periods.

7. A … … means that the bank agrees to … the business owners an … of … to a stated maximum at any time.

8. If the new firm planners own a commercial building, they can usually … a … on it with payments over as many as 30 years.

9. In that case the planners will be making mortgage payments instead of … … to a landlord.

Assignment 6. Match the words with their definitions.

fixed capital, equity capital, venture, secure a loan,

savings, mortgage, account receivable, rental, loan

1. A sum of money due to be received from a customer in the ordinary course of trade but not yet paid.

2. The act of lending, especially on condition that the thing lent will be returned.

3. Sums of money saved, not spent but put aside for further use and in the meanwhile invested or held as cash.

4. The part of the capital of a company that consists of ordinary, deferred, deferred ordinary or founder’s shares, all of which together, in effect, carry the right of ownership (the equity) in the business.

5. A contract by which the owner of land (the mortgagor) borrows money, giving the lender (the mortgage) an interest in the land as security for the loan.

6. The amount, in money, of the rent for a particular property or part of a property.

7. That part of the capital of a business which is represented by the value of producer goods, i.e. goods held and used to produce the products which the business sells.

8. To make the loan safe for the lender by pledging or mortgaging property with him as security.

9. A business or a business deal, in which there is some degree of risk, which is accepted in the expectation of making a profit.

Assignment 7. Supply the sentences with the missing words.

encourage, refer, source, aid, dealings, would-be, inherit, borrow, subsequent

1. He always … money from his friends and never pays it back.

2. Candidates are required to publish the … of their campaign funds.

3. They … a weak economy.

4. I met him first when I was a very young … banker.

5. Her success … me to try the same thing.

6. … research has produced even better results.

7. We have had … with them for many years.

8. The serial number … to the country in which the car was manufactured.

9. He had sought the … of the counter.

Assignment 8. Complete each of the sentences by using the past form of one of the verbs on the left and combining it with one of the words on the right. Use each verb only once. Some words on the right are used more than once.

carry come draw

run set stand stop

in over out

off up

1. We … of computer paper and we had to order some more.

2. They … a survey on biological detergents.

3. He was bancrupt but he … a company in his wife’s name.

4. I … for Ann while she was away for the conference.

5. The workers … on strike when the management refused to increase their offer.

6. On the way to Australia I … in Bangkok for two days.

7. They … an agreement which satisfied both sides.

Assignment 9. Complete the following sentences with the correct preposition.

1. We are looking … a message which really appeals … the audience. So far we haven’t found one.

2. People tend to look … to expert figures such as doctors.

3. We were thinking … doing the ad on television.

4. He insisted … using a balance argument to present the product.

5. I was very annoyed … the simplicity of the arguments. Consumers like to think … the product.

6. Have you heard … Professor Smirnov? He is very well-known in his field.

7. We’ve looked … the question of hiring professional actors. It’s too expensive.