Different Ways of Obtaining Business Finance
If you ever have any interest in understanding business, one of the primary things to know is the business finance. You have to commence your studies with short-term funding. When you talk about short-term fund; you see the amount of money that is required to pay for the immediate needs of a company. A company may be looking for short financing to enable it to take care of the tax payments, salaries and wages, repair costs and many others.
The the reason why a business may want to get short-term finance is because sales revenue and what has been purchased is not the same all the time. You could also find some times when purchases are made cash, but sales are on credit. That will make a massive difference in purchases and sales. In This situation the business owner is allowed by the bank to remove more than what the business has in the bank. There are several sources of short-term finances which are as follows. You can have so many origins o short-term finance as listed below. One of these sources is bank overdraft. Bank overdraft is one of the causes that are widely used as a source of business finance.
The another source is when bills of exchange are cut by the bank. That can become a source of money to the owner of the bill immediately to cater to the pressing needs. There are other times when companies may confirm orders from customers and ask them to pay before delivery. Sometimes that is what the companies use when they are supplying the orders. Other enterprises prefer utilizing the installment purchases. What happens is that the deferred payments are used to take care of other financial needs. Sometimes businesses use the bill of lading to supply them with the money they need immediately by borrowing money from the bank.
Many businesses also use trade credit as a source of their finance. This is a situation where businesses buy raw materials and spare parts on credit. That results in increasing the account payable of the business which is paid after some time. The bills are not paid immediately, and that gives an allowance to use the money for other purposes.
At times the businesses use the medium term finance. This is a situation where the business needs to meet some medium-term like say five years requirements. The business requires such financing for buying equipment. Normally medium-term financing is obtained in financial institutions like the bank. The business obtains the money from the bank to buy the equipment and then it will be left to pay the bank in small installments. The the firm also uses hire purchase to obtain the machinery. The businesses pay the hire purchase company some installment carried the equipment to be paying is small installments.