Modelling loan acquisition decisions

Abstract

The present research explores capital requirement models used in medium‐size, private construction firms. The decision‐maker of a contracting firm can implement a cash flow forecasting model as an early warning system by using a model to identify likely cash‐flow problems in advance of the occurrence of these difficulties. Arrangements for acquiring any needed funds from other sources can then be made to avoid the possibility of financial problems in the corporation. In the present research, a model for financial decisionmaking is developed which, as demonstrated in a case study, provides a method of solving borrowing decision problems. The model includes the ability to evaluate qualitative and fuzzy circumstances. The model also assists in the selection of sources of funding, taking into consideration the capital structure ratio, the period of cash requirements, the borrowing limits and the tax conditions of the firm. The purpose of the model is to provide the decision‐maker with a tool kit to analyse her/his financial options.

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