BUSINESS
FINANCE
Prof. Dr. Mariathasan Mike
,Lecture 1 ................................................................................. Error! Bookmark not defined.
1. Access to Finance ....................................................................................................................................................... 4
2. Introduction to entrepreneurial finance ........................................................................................................................ 9
3. Evaluating Business Opportunities..............................................................................................................................16
4. Quiz ..........................................................................................................................................................................24
Lecture 2 ...................................................................................................................... 28
1. Why financial planning? .............................................................................................................................................28
2. The Financial plan ......................................................................................................................................................30
5. Ownership and Returns ..............................................................................................................................................39
6. Valuation methods .....................................................................................................................................................50
7. Quiz ..........................................................................................................................................................................60
Lecture 3 ...................................................................................................................... 65
1. Guest lecture .............................................................................................................................................................65
Lecture 4 ...................................................................................................................... 67
1. Agency conflicts & control right ..................................................................................................................................67
2. Term sheet .................................................................................................................................................................73
3. Structuring deals .......................................................................................................................................................86
4. Corporate governance ................................................................................................................................................91
Lecture 5 ...................................................................................................................... 99
1. Staged financing ........................................................................................................................................................99
2. Debt financing ......................................................................................................................................................... 106
Lecture 6 ..................................................................................................................... 113
1. Exit .......................................................................................................................................................................... 113
2. Venture capital ........................................................................................................................................................ 114
3. Early stage investors ................................................................................................................................................ 126
4. Quiz ........................................................................................................................................................................ 130
Lecture 7 ..................................................................................................................... 134
1. Early stage investors (continued) .............................................................................................................................. 134
2. Financing mature firms............................................................................................................................................. 139
3. Capital structure in perfect markets .......................................................................................................................... 142
4. Capital structure in imperfect markets ...................................................................................................................... 144
Lecture 8 ..................................................................................................................... 156
1. Bank credit .............................................................................................................................................................. 156
2. Private equity ........................................................................................................................................................... 165
2
, 3. Leveraged Buyouts ................................................................................................................................................... 167
4. Trends in corporate borrowing .................................................................................................................................. 169
5. Quiz ........................................................................................................................................................................ 174
Lecture 9 ..................................................................................................................... 177
Guest lecture: Collateral in Business Finance ....................................................................................................................... 177
1. Overview ................................................................................................................................................................. 177
2. Collateral features ................................................................................................................................................... 179
3. Collateral in Euro Area .............................................................................................................................................. 180
4. Going forward .......................................................................................................................................................... 184
Lecture 10 ................................................................................................................... 186
1. Public debt .............................................................................................................................................................. 186
2. The art of timing: managing sudden stop risk in corporate credit markets .................................................................... 193
Lecture 11 ................................................................................................................... 196
3
, Lecture 1
1. Access to Finance
1.1 Financial constraints/ credit rationing?
A firm is called “financial constraints” when it wants to do an investment but it not able to borrow
money, not even for a high interest rate.
Lamont et al.: “by ‘financial constraints’ we mean frictions that prevent the firms from funding all
desired investments”. For example, like a start-up that desires a loan, but the bank doesn’t trust
them. Financial constraints/credit rationing?
R
S
D
External
Finance
KU Leuven - Business Finance 2025 - M. Mariathasan - DO NOT
5
The more firms need to pay to borrow money, the less they want to. When there are more firms
CIRCULATE ON THE INTERNET - FOR PRIVATE USE ONLY
that want to borrow money than bank that want to lend money, the interest rate will increase. But
with credits, it can happen that some firms do not get money even when they are willing to pay a
higher interest -> credit rationing (firms who want money but do not get it).
The interest rate clears the market for external funds
• If demand > supply, the interest rate will increase
• If demand < supply, the interest rate will decrease
Credit rationing: there exist firms that are willing to borrow at the equilibrium interest rate (or at
the higher rate) but are unable to do so.
4
FINANCE
Prof. Dr. Mariathasan Mike
,Lecture 1 ................................................................................. Error! Bookmark not defined.
1. Access to Finance ....................................................................................................................................................... 4
2. Introduction to entrepreneurial finance ........................................................................................................................ 9
3. Evaluating Business Opportunities..............................................................................................................................16
4. Quiz ..........................................................................................................................................................................24
Lecture 2 ...................................................................................................................... 28
1. Why financial planning? .............................................................................................................................................28
2. The Financial plan ......................................................................................................................................................30
5. Ownership and Returns ..............................................................................................................................................39
6. Valuation methods .....................................................................................................................................................50
7. Quiz ..........................................................................................................................................................................60
Lecture 3 ...................................................................................................................... 65
1. Guest lecture .............................................................................................................................................................65
Lecture 4 ...................................................................................................................... 67
1. Agency conflicts & control right ..................................................................................................................................67
2. Term sheet .................................................................................................................................................................73
3. Structuring deals .......................................................................................................................................................86
4. Corporate governance ................................................................................................................................................91
Lecture 5 ...................................................................................................................... 99
1. Staged financing ........................................................................................................................................................99
2. Debt financing ......................................................................................................................................................... 106
Lecture 6 ..................................................................................................................... 113
1. Exit .......................................................................................................................................................................... 113
2. Venture capital ........................................................................................................................................................ 114
3. Early stage investors ................................................................................................................................................ 126
4. Quiz ........................................................................................................................................................................ 130
Lecture 7 ..................................................................................................................... 134
1. Early stage investors (continued) .............................................................................................................................. 134
2. Financing mature firms............................................................................................................................................. 139
3. Capital structure in perfect markets .......................................................................................................................... 142
4. Capital structure in imperfect markets ...................................................................................................................... 144
Lecture 8 ..................................................................................................................... 156
1. Bank credit .............................................................................................................................................................. 156
2. Private equity ........................................................................................................................................................... 165
2
, 3. Leveraged Buyouts ................................................................................................................................................... 167
4. Trends in corporate borrowing .................................................................................................................................. 169
5. Quiz ........................................................................................................................................................................ 174
Lecture 9 ..................................................................................................................... 177
Guest lecture: Collateral in Business Finance ....................................................................................................................... 177
1. Overview ................................................................................................................................................................. 177
2. Collateral features ................................................................................................................................................... 179
3. Collateral in Euro Area .............................................................................................................................................. 180
4. Going forward .......................................................................................................................................................... 184
Lecture 10 ................................................................................................................... 186
1. Public debt .............................................................................................................................................................. 186
2. The art of timing: managing sudden stop risk in corporate credit markets .................................................................... 193
Lecture 11 ................................................................................................................... 196
3
, Lecture 1
1. Access to Finance
1.1 Financial constraints/ credit rationing?
A firm is called “financial constraints” when it wants to do an investment but it not able to borrow
money, not even for a high interest rate.
Lamont et al.: “by ‘financial constraints’ we mean frictions that prevent the firms from funding all
desired investments”. For example, like a start-up that desires a loan, but the bank doesn’t trust
them. Financial constraints/credit rationing?
R
S
D
External
Finance
KU Leuven - Business Finance 2025 - M. Mariathasan - DO NOT
5
The more firms need to pay to borrow money, the less they want to. When there are more firms
CIRCULATE ON THE INTERNET - FOR PRIVATE USE ONLY
that want to borrow money than bank that want to lend money, the interest rate will increase. But
with credits, it can happen that some firms do not get money even when they are willing to pay a
higher interest -> credit rationing (firms who want money but do not get it).
The interest rate clears the market for external funds
• If demand > supply, the interest rate will increase
• If demand < supply, the interest rate will decrease
Credit rationing: there exist firms that are willing to borrow at the equilibrium interest rate (or at
the higher rate) but are unable to do so.
4
