âSadlerâs nibble bar clean winnerâ
Capital Structure Attention in the Case
The question of the capital structure in the current case study is considered not much. The only information, which can be got from the given information, is that the owner of the invention had input $30,000 and has some overdraft, the sum of which is not mentioned. The company is just developing and is not ready for the investments for now, but the time, when it will be ready, is soon. The company has started its development in 1996, and already has four staff and one agent.
Overdraft Question
Reference to an overdraft interpretation. How is this likely to be secured? Is it going to be large or small amount?
Considering that the company is a small one and on the stage of its development, the overdraft is the normal state, but the amount of it should be small as the inability of the company to have investment may lead to the fact that it will not be able to cope with the debt. The absence of financial input and overdraft holds the company back, but the documentation is almost ready, and the company will become investment ready.
The Capital Structure Choice
Even though financial information is limited, one shall try to identify issues that might emerge in respect of the different explanations for capital structure choice discussed in the said case.
Despite the limited information about the Nibble Bar, the data may be gathered that the capital structure choice, which was used, was dictated by several factors. First, the innovation is not so popular, because of the absence of advertising (the limited budget). Second, the innovation may be considered useless from the first time, moreover, the documentation is not ready and there may not be any investment. Third, starting the idea development, Sadler had nothing but the idea, without being sure in the successful conclusion of the affair, so personal assets were used. The overdraft is also understood, as banks do not trust the company, without any guarantors or steady income.
âJust screening for successâ
Personal Loan as Opposed to Business Loan
Mr Muggleton negotiated a personal loan for $30,000 as the responsibility before the business loan would have pressed the business owners and could have led to the pressure on the business run, which could have led to the business close. Moreover, the bank could refuse Mr. Muggleton a loan. Moreover, putting personal costs is the additional stimuli for the owner to develop business faster and to return the loan, without covering the percentages.
The Reasons for Bank Loan Refusal
Mr. Muggleton could be given refuse, as he did not cope with business before, and there was no business plan and other necessary documents and confirmation for a bank, to allow the loan. Moreover, the responsibilities before the bank may hold the business back as much money had to be spent on percentage covering.
The Choice of an Investor or the Professional in the Starting Business
Choosing the partner, Mr. Muggleton found the person who knew the screen-printing sphere that the person, who could provide the financial support to the company, as the person, who knows the business is the additional helper, and there was no necessity for extra education of other people. People, who know the business inside, may better cooperate and the company development will go faster, without extra funding of the staff education on the beginning stages.
Short-Term and Long-Term Loans
The reasons of the owners like Mr Muggleton to use short-term funds to fund long-term assets combine two factors. First, the short-term funds are easier to control and to guarantee the in-time covering of percent from the loan. The second reason is the finance gap, which is characterized by the big amount of necessary costs and the low income of the small starting developing company.
References
Fenech, A. 2001, âJust screening for successâ, The Sunday Telegraph, p. 102.
Holmes, S, et al 2002, Small Enterprise Finance, Wiley, New York.
Moore, J. 2000, âSadlerâs nibble bar clean winnerâ, buisnessnsw, p. 15.