How I Became An Expert on Lenders
We can look into various sources of finance that can aid your business in its daily and long term operations. Here we can present briefly these various kinds of finance sources.
The number one kind of finance that we will present is called short term finance, and you can use this in fulfilling the current needs of your operation. The current needs of a company that would need attending to are as follows – tax payments, salaries and wages of employees, repair costs, payment to creditors and so on. It is a fact that what contributes to the need for short term finance is the imbalance of the inflow of sale revenues against the payments of purchases of the company. Situations like higher purchases compared to sales, or low sales against purchases, or in some situation sales are on credit bases while your company has to make purchases in cash basis, thus you need short term finance to balance out. You can have short term finance through bill discounting where you are given cash by banks to finance your present needs in operation. Another way is to get advances from your customers who placed an order to you, and they can give the money if you confirm their orders so you can produce the orders. Other sources of your short term finance is to loan against your documents, or you buy materials on the basis of installment.
The next type of finance is the medium term which can be used for a business that requires 1-5 years of use for balancing, modernization and replacement of machineries and structures to operate further the business. For medium term finance, sources could come from commercial banks, buying on installment basis like hire purchases, going to financial institutions like industrial banks which can also give technical and managerial assistance, and other sources like debentures, TFCs and insurance companies.
The next type of finance is the long term finance which a business can make use for as long as 5 years. Companies that need funds for their expansion, purchase of heavy modernization and structures to further develop the growth of the business would need this kind of finance. The sources of this kind of finance could come from equity shares which are subscribed to the public so that a capital base is generated, and this is true in large business organization. You can have also a long term finance from retained earnings coming from excess profits of the earnings of the company. Through leasing, which is another source of long term finance, a firm can acquire new equipment without spending big amounts in cash basis. Other sources aside from financial institutions are debentures and participation term certificates that can give long term loans to companies.
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