There are two forms of finance that can be utilised by the business, the first being external finance, this can refer to any type of finance that is acquired from outside of the business; the examples of this are discussed below.
A debenture is a promissory note that is backed generally only by the integrity and reputation of the borrower and the borrower’s specific assets. This money is normally “loaned” to the borrower for a period of time, agreed by the debtor and the creditor; they will also agree a percentage of interest that the borrower has to pay back. The capital is paid back at the end of the term agreed by both parties. Debentures would be a precarious choice for the business as the interest will normally be higher than the interest
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The disadvantages of this are that if you fail to make payments the item can be taken off of you, as you don 't strictly own it.
An overdraft is a loan arrangement under which the bank will extend your credit to a maximum amount, this form of finance should not be used to buy machinery as interest costs tend to be high, therefore it should only be used to pay employees wages when you don 't have the available funds to do so. This form of finance can be useful in the short term but not in the long term.
A business loan is a loan that is specifically intended for business use and as with all loans involves the creation of a debt, which will be repaid with added interest. The benefit of this type of loan is it specifically geared toward businesses and because of this will typically be secured against an asset owned by the business but can occasionally be an unsecured loan . The disadvantages of a business loan as a source of finance is that the interest the business will have to pay is non-negotiable, this means if the interest rates are high then you may have to look
Overdraft Loans (also called "bounce protection" plans): In exchange for covering account overdrafts, banks charge returned check fees per transaction. Some banks also charge a per day fee until the cons...
An SBA business loan is one of the most popular methods of funding a small business. Basically, this type of loan offers banks a guarantee on any small business loan, giving banks more reason to approve the loan.
in business it need to be consider the most effective form. Capital is one of the factors to
Then, let’s assume you put $200 on your card. Your balance would start out at $200 in credit and X amount still in debt. Then, within 30 days, your minimum payment amount would be deducted and you would have only $110 in your account. A short-term benefit is that you may spend that $110 again if you wish, whereas if you put money into your personal loan account, then you cannot touch it again because it is considered a loan repayment. The fact you are able to access the money you overpay on your credit card is a blessing. It means that if you are strapped for cash, then you may re-borrow the money you put back into your credit
These lenders perform a risk assessment in order to determine the interest rates and how long the loan will be for the applying company. These parties that supply credit are trade credit, revolving credit lines, lines of credit, letters of credit, term loans, mortgages. “Trade credit from suppliers is a routine and most often non-interest bearing, revolving credit lines are loans that companies draw on as needed, lines of credit are guarantees that funds will be available when needed, letter of credit interposes a bank between the two parties to a transaction, term loans are what we commonly understand by bank loan, and mortgages are loans secured by long-term assets such as land and building. Another parties that companies borrow from is the nonbank private financing, leasing financing, and publicly traded debt when they have been denied by banks. The bad thing from borrowing from nonbank private lenders is that they can fund higher risks
Debt capital refers to money borrowed. Examples of this include bonds and short-term commercial paper. Bonds are more widely used because it provides a company with years to come up with the principal while paying interest only. Bonds are rated (i.e. AAA, AA, BB, etc.), these ratings correspond to the risk of default. The higher the rating, the lower likelihood of default and therefore a lower interest rate accepted by the lender. Short-term commercial paper is typically...
When you are a relatively new small business owner, your credit is not very ideal and as such traditional lenders such as banks are not very likely to give you a business loan owing to your bad credit. But if you can show on paper that there is enough cash flow that you may be able to repay the loan that the bank gives you, the bank is more likely to give you a loan despite the bad credit. Even so, the bank assesses the credit risk. The interest rates are directly proportional to bad credit. Interest rates are higher with worse credit.
What do you understand by the phrase “stakeholder analysis”? Attempt a stakeholder analysis of an organisation that you are closely associated with.
Borrow long-term loans from local banks – These are a common way of financing major purchases of an organization. An advantage is that it is directly linked to an organizations operating capacity. Another advantage of long-term loans from local banks is that it enables a firm engage in large projects. Although its disadvantage is that the banks charge high interest rates.
Ÿ Capital structure/investment - This information is taking from the Balance sheet, but also from the Profit and Loss Account. This is examining the sources of finance the company has used and also looking at it as a potential investment opportunity. There are certain features, which must be present if financial information is to meet the needs of the user. The two most important features are that: Ÿ The information should be relevant to those who are using it.
Research on the Sources of Finance for a Business Firms sometimes need to raise finance for Working Capital and Capital Expenditure. Explain what each is and give examples. · Working Capital (or Revenue Expenditure) The working capital is made up of the current assets net of the current liabilities. It is vital to a business to have sufficient working capital to meet all its requirements. Many businesses have gone under, not because they were unprofitable, but because they suffered from shortages of working capital.
Access to capital and credit at various stages in the business life cycle is identified as the major hurdle by the entrepreneurs. For many small firms and most start-ups, the personal funds of the business owners and entrepreneur and those of relatives and acquaintances constitute as the major source of capital. For many small businesses, especially during the early years of their operation, credit is simply not available. For many others, the limited available credit is not through bank loans. Due to this many of them rely on multiple credit card balances and home equity loans as major sources of credit for start-up firm. Because banks are bound by laws and regulations to prudent lending standards that require them a risk management assessment for each loan made. These regulations were made more vigor during the late 1980'' and early 1990 . Banks always found that lending to manufacturing firm with hard asset such as property, equipment, and inventory has always been easier than lending to today's expanding service sector firms. Because the service sector firms own few hard asses, therefor lending judgment have to be based in terms of character, markets, and cashflow, which make it difficult to the bank to meet the regulations for the approval of the loan. Additional, the banking industry, as well as the entire financial sector of the
The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.
As we start our business, and even our business moves along, we will constantly need to concern ourselves with financing our business. Financing concerns begin with the start-up costs and then continue with business expansion and new product development. When we look for outside financing, one of the first things the investor will want to see is our business plan. Private investor, banks or any other lending institution will want to see how our plan on running our business, what our expense and revenue projections are whether or not our plans for the future are attainable with the business we have created. All of this can be answered by a well-written and thorough business plan.
Financial theories are the building blocks of today's corporate world. "The basic building blocks of finance theory lay the foundation for many modern tools used in areas such asset pricing and investment. Many of these theoretical concepts such as general equilibrium analysis, information economics and theory of contracts are firmly rooted in classical Microeconomics" (Oaktree, 2005)