Sources of Business Finance.
Due to the fluctuating of market forces in the business world today it is quite important if any business makes proper arrangements in order to have positive cash flows. Some factors will have to be considered by any business willing to have positive cash flows in order for it to remain relevant in the markets at all times.
In order to determine how well can a business be able to finance its own investment one ought to understand the current financial position of the business that is, making a determination of the funds available less the owners’ equity. Having determined that one has also to understand the actual fixed costs of the business say maybe for about a month or so, this will help determine the funds the business is using whether making sales or not in order to run day to day operations of the business. With those facts however one has to understand that financing business cash flow will be dependent on the uniqueness of the business, maybe if the business is new, business size, business sector and so on.
Having done the above stages it now becomes easy for one to find the source of finance in order to finance the said business. There are about three major categories of financing one can look for namely short-term financing, medium-term finance, and long-term finance. In short-term finance is commonly used to cater for short-term and current needs of the business obviously not exceeding one year for the repayment, mostly it is used to finance repairs, and maybe taxes. Among the examples of short-term business financing is the bank overdraft, whereby the business will be allowed to draw more money than what is actually in the account, this kind of financing is easy and does not have high rate of return.
For those businesses that would like to do some re-engineering or acquisition of a new plant medium-term finance should serve them best, this financing is commonly given for a period not exceeding five years. Commercial banks and other financial institutions are the best examples of this kind of funding that is medium term financing. In light that for a higher chance of the financier to get his fund back they must check the creditworthiness of the client, however, there are some changes in the financial market that there are some institutions that do not necessarily require that. Despite that being the case of financing the business or individual though with poor credit rating, one should consider visiting the said financial institutions for further guidelines.