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Homework answers / question archive / Scenario: Mr
Scenario:
Mr. Habib, a newsagent in a rural village, has decided to purchase a new freezer cabinet and microwave oven/roasting unit to provide hot meals for village workers and for students at the secondary school, which serves the surrounding area which is located half a mile from the village. The total cost of the units is OMR 950.
Based on the given scenario answer the following tasks:
I. Sources of finance are the most explorable area especially for the entrepreneurs who are about to
start a new business. Reading the above scenario, you must decide what type of finance the business
should go and why? (20 marks)
II. Of course, there could be more than one appropriate source of finance. Mr. Habib is unaware about the different sources of finance available. You are required to help Mr. Habib to identify the right
source of finance available to meet his urgent financial needs. (30 marks)
III. In the given scenario, it shows Mr. Habib needs a short-term finance as the amount is just OMR 950. On this ground, you are required to identify one of the financial providers existing in the Sultanate of Oman mentioning their financial products and discuss the different short-term credits available,
considering the cost, risks and benefits involved in meeting his financial needs. (40 marks)
IV. Based on the above understanding conclude your task on explaining which is the most appropriate
source of short-term finance for Mr. Habib. (10 marks)
***END OF ASSIGNMENT TASK***
I. Finance is considered as the lifeline of the business. A Business can survive through various difficult situations if it has an adequate finance. Source of Finance of Business can be through issuing shares, debentures, personal capital, short term loans like Overdraft, loans from commercial bank, Venture Capital etc.
In the given case, Mr. Habib is in need of OMR950 only. So he can take short term loans for this. He can use of Bank Overdraft and can pay as he earns. Short term loans also comes up with low interest rates. He may also use Trade Credits. However the best short term finance for Mr. Habib would be trade credit as there is no need to pay interest on it.
II If the need of Mr. Habib is urgent then he can take short term unsecured loans from another person. But the Case is it involves high cost of Interest.
As Trade Credit will be given to a reputed Businessman and Banks also have various formalities in giving Bank Overdraft. And taking a Secured Loan for such a low amount will not be beneficial.
III. One of the Service Provider we must include is Bank Muscat. It provides various financial products like Credit Cards, Debit Cards, Overdraft Facility, Current Account etc. The main short term credits available which we have already discussed are Trade Credits, Bank Overdrafts, Unsecured Loans, Commercial Bills of Exchange.
Trade Credit is Simply the loan extended by one Businessman to another while selling its product. It is basically from 7 days to 30days and even more. Buyer does not need to pay any interest till due date. But Trade Credits are only given depending upon the previous relationship between two parties.
Bank overdafts is the facility given by bank to allow its customer to spend more than what he or she has deposited. It carries a rate of interest and given to clients based upon certain things like Sales, Debtors, Stock value Amount.
Unsecured Loans as earlier said is the quick way to short term fnance but carries a high amount of interest due to less formalities as compared to Bank.
Commercial Bills of Exchange or Promissory Note is given by buyer promising he will pay the amount on due date. These are also negotiable in some cases.
IV Based on the given case Mr. Habib can draw a bills of exchange as a suitable means of short term finance and then after the time passes he can even take the equipment on trade credit from the same supplier.
