Financial Guide for SMEs - SME Corporation Malaysia

Repayment of Debt Finance/ Investment CapitalFinancial Guide for SMEsDEBT EQUITY INTERNAL FINANCEThe debt financeagreement provides theterms of repayment ofthe funds borrowed.The funds borrowed willbe repaid either ininstalments over the loanperiod or at the end of theperiod.The business will need togenerate suffi cient fundsfrom profi ts and cash fl owto meet these commitments.The equity investor hasacquired an interest inthe business. In orderto obtain return on thefunds invested, theinvestor will need tosell his/her interest inthe business.The return of the initialfunds invested willdepend on the changein value of the businessand the ability to finda willing buyer or anappropriate exit strategy.No repayment offunds is required.The lender does notshare the risk of thebusiness or the benefi t ofgrowth through increasedvalue.The equity investorshares both the risksof the business andthe benefits of growth.Hence, an investor mayreceive either more orless than what theyinitially invested.87chapter 7-13 p79-181 Eng.indd 878/15/11 5:02:55 PM