Harbour Hive Ltd (HH) is a private limited company that produces premium honey and beeswax candles for tourist shops. HH has been profitable for four years and has built up retained profit, but the two founding shareholders usually take dividends to support their families. HH has also stopped using one small delivery vehicle after outsourcing deliveries. A hotel group has offered HH a five-year supply contract if HH can finance a new bottling room and quality-control equipment. The founders are considering using retained profit and selling the unused vehicle rather than taking a bank loan.

Mosaic Meals (MM) is a start-up social enterprise that plans to sell frozen meals made from surplus vegetables collected from farms. MM has received positive feedback from local supermarkets, but it has not yet traded and therefore has no retained profit. The founders have limited personal funds and want to keep the social mission of reducing food waste. To launch, MM needs finance for freezers, packaging design and initial promotion. A business angel has offered finance and marketing advice in return for 30% ownership. MM is also considering reward-based crowdfunding from supporters of food-waste reduction and leasing the freezers.

Harbour Stitch Ltd (HSL) is a private limited company that manufactures uniforms for local schools. HSL has won a three-year contract to supply sports uniforms to a national school group. To fulfil the contract, HSL needs to buy an automatic embroidery machine and purchase additional fabric before production begins. The directors want to preserve control of the company and avoid financial risk, but they also do not want to miss the contract deadline.

Table 1: Selected financial information for HSL

RePlay Toys (RT) is a start-up partnership that designs educational toy kits from waste wood. RT has no retained profit, but its founders have built an online community of parents and teachers interested in sustainable toys. The partners must decide how to finance the launch. They are considering Option A: use crowdfunding for the product launch and lease a delivery van. They are also considering Option B: use loan capital to buy the delivery van and finance the launch. A bank will only lend if the partners provide personal guarantees.

Under either option, the partners may contribute up to USD 10,000 of their personal funds to supplement the external finance. No upfront lease payment is due at launch; the annual lease payment will be met from operating cash flow. The lease term and bank loan repayment schedule are not specified, so make a qualitative comparison and give a conditional recommendation, stating any assumptions or conditions that affect your decision.

Table 2: Selected financial information for RT

Solaro Homes plc (SH) manufactures modular solar roofing panels for housebuilders. SH is a public limited company with a strong brand and rising sales, but interest rates in the economy have increased. SH wants to build a second factory to meet expected demand over the next ten years. The project requires a large amount of long-term finance. The board is considering issuing new shares rather than using loan capital. Some existing shareholders are concerned about dilution, while the finance director argues that the new factory is too risky to finance with high-interest debt.

WavePure Ltd (WP) is a private limited company that has developed sensor-controlled water filters for fish farms. WP has completed successful trials and now needs finance for a pilot production facility and marketing to large fish-farming companies. The founders want rapid growth, but they are concerned about losing control. A business angel with experience in aquaculture technology has offered finance and mentoring. WP is also considering using retained profit and loan capital.

Table 3: Selected financial information for WP

For the loan option, assume that interest is calculated annually on the outstanding opening balance and that the USD 77000 principal repayment is made at the end of each year.

ReThread Community (RTC)

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

ReThread Community (RTC) is a social enterprise organized as a private limited company. It collects unwanted clothing from hotels and retailers, trains unemployed young adults to repair and redesign it, and sells affordable upcycled workwear to low-income workers. RTC's social mission is to reduce textile waste while creating paid training and employment. Any surplus is reinvested into training programmes.

RTC currently operates from one rented workshop. Demand from three city councils is rising because they want sustainable uniforms for public workers. To accept the contracts, RTC needs finance for an industrial cutting machine, additional working capital and a small delivery vehicle. The directors want to avoid losing control of the social mission.

Resource 2 — Selected financial information for RTC

RTC has retained profit available, owns some unused sewing machines that could be sold, and has an existing bank overdraft. The proposed city council contracts would increase annual revenue, but councils pay invoices 60 days after delivery. RTC's bank has warned that overdraft interest rates may rise.

Resource 3 — Possible sources of finance under consideration

The directors are considering: using retained profit; sale of unused assets; loan capital; donation- or reward-based crowdfunding through RTC's online supporters; and a larger overdraft facility.

Resource 4 — Social-media statistic

RTC has 18 500 followers on social media. A recent post about “workwear that changes lives” was shared 2400 times and generated many comments asking how supporters could help.

Resource 5 — Quotation from the founder

“Our priority is not rapid growth at any cost. We need finance that lets us meet the city council opportunity while protecting cash flow and keeping our training mission at the centre of every decision.”

SeedReach Finance (SRF)

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

SeedReach Finance (SRF) is a social enterprise that provides affordable financial education and small loans to women starting micro-businesses in rural areas. SRF is registered as a private limited company with an asset lock: profits must be reinvested in expanding access to finance and training. It has built strong community trust through local mentors and repayment groups.

SRF wants to launch a mobile-phone platform so clients can apply for loans, receive training videos and make repayments digitally. The platform would allow SRF to reach more villages, but it requires significant finance for software development, staff training and customer support. SRF has limited retained profit because it keeps loan interest rates low for clients.

Resource 2 — Selected information about finance options

A business angel with financial-technology experience has offered investment in return for 30% ownership and two seats on SRF's board. A charitable microfinance provider has offered a smaller loan with monthly repayments and mentoring, but the amount available would not fully finance the platform. The directors are also considering issuing new shares to impact investors who support SRF's social mission.

Resource 3 — Operational data

SRF currently serves 620 borrowers in 14 villages. A pilot of the mobile platform showed that clients using mobile reminders were less likely to miss repayment dates, but some clients have limited digital skills.

Resource 4 — Social-media statistic

A short video of one borrower explaining how SRF helped her start a food stall received 75 000 views and 5200 positive reactions on social media.

Resource 5 — Quotation from the operations director

“If we accept finance too quickly, we may lose our community-based identity. If we move too slowly, other lenders with higher interest rates will reach these villages first.”

CleanPlate Kitchens (CPK)

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

CleanPlate Kitchens (CPK) is a social enterprise that prepares low-cost nutritious meals using surplus food from supermarkets and farms. It sells meals to schools and community centres and donates some meals to homeless shelters. CPK's aim is to reduce food waste and improve access to healthy food. It operates from two rented kitchens and reinvests any surplus into community meal programmes.

A regional hospital group has offered CPK a five-year contract to supply healthy meals to patients and staff. The contract would increase CPK's output significantly. To deliver it, CPK needs refrigerated vans, food-processing equipment and additional inventory. CPK's managers are considering leasing the refrigerated vans, using trade credit from food packaging suppliers, and increasing the bank overdraft for short-term cash-flow needs. They may also apply for loan capital to purchase food-processing equipment.

Resource 2 — Selected financial and operational information

The hospital group would pay CPK 45 days after receiving each monthly delivery. Suppliers of compostable packaging have offered 60 days' trade credit, but only if CPK pays on time during the first six months. The bank is willing to extend CPK's overdraft, but it can withdraw the facility with one month's notice. Food-processing equipment is expected to be used throughout the five-year hospital contract.

Resource 3 — Finance needs

CPK's managers have identified separate needs: refrigerated vans for deliveries, food-processing equipment for the contract period, packaging inventory for monthly production, and temporary working capital while waiting for hospital payments. They are trying to match each need with an appropriate short-term or long-term source of finance.

Resource 4 — Social-media statistic

CPK's community meal posts receive high engagement from local parents and health workers. A recent post about using “rescued food for healthier hospitals” reached 110 000 people.

Resource 5 — Quotation from the finance manager

“Winning the hospital contract would increase our social impact, but using the wrong finance could create a cash-flow crisis. We must not fund long-term assets with short-term finance just because it is easy to arrange.”