What You Need to Know About the Various Business Financing Sources

What You Need to Know About the Various Business Financing Sources

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    Whatever the setting of the business, there is the need for financial resources. Most businesses survive on funding through external sources like.

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Introduction

Whatever the setting of the business, there is the need for financial resources. Most businesses survive on funding through external sources such as:

  • investors
  • commercial loans
  • bank loans
  • banking overdraft facilities
  • shareholders
  • and many more…

Before a certain business is able to secure finance, it receives most of its funding from external sources. There are quite a number of ways by which a business can be financed depending on the type of the organization. Larger organizations have a wider variety of sources of finance than the smaller ones.

An obvious way of putting money into a business is the business savings. A small business could also borrow money from friends and families. In contrast, large companies mainly raise their income through shareholders.

External sources of financing

The most common sources of finance are shareholders, creditors, and the bank. For extra business financing, an organization can take a bank loan or from any other financial institution. A loan is the total sum of money lent for a certain period of time. Additionally, interest is involved in the repayment.

The moneylender need to know the risks and the business opportunities involved and therefore the need for a detailed business plan. In some situations, the lender might require some kind of security in case the organization runs into financial difficulty while paying for the loan.

  • Bank overdraft facility is another way by which a business can raise short-term funds. the bank gives the borrower the permission to withdraw more money than they have put from their account.
  • Venture capital also renders money to a business. Investment specialists and merchant banks might provide finance for a fast-growing and promising business. This usually involves a loan capital and share in one package.
  • Government grants is another way of ensuring success in business financing. loans and grants might be available to organizations setting up in areas of high unemployment and in rural areas.

Funding business expenditures

There are ways of funding the expenditures of an already running business. Leasing expensive items from a leasing company rather than buying the items saves a lot for an organization. The organization will not have to worry about the cost of the item and the major repairs that require extra money. Office equipment, motor vehicles, and machines are often leased.

An alternative way of buying these items is through hire purchase. In contrary to leasing where one does not own the item, hire purchase allows an organization to own the item through payment of a deposit and monthly installments. You become the legal owner once the last installment is paid.

other valuable resources:

Internal sources of financing

Organizations have their own way of financing themselves internally through personal savings, working capital, retail profit and sales of assets among others. Personal savings is the most common method where the business owner has available savings for use as they wish. Retained profit is the already made profit set aside to be reinvested in the business.

Conclusion

Be it internal or external funding of a business, the money is vital for the running, growth and development of of businesses everywhere. It is important to have a strong basis for sourcing the money for a business in order to lead to its success.

Image Credit: Pixabay

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