What are the Various Different Methods of Business Financing?

What are the Various Different Methods of Business Financing?
  • Opening Intro -

    How can small businesses overcome the striking difficulties brought by quick changes in the business financing environment?

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Answer:

business people should keep analyzing the working capital journal regularly to understand when a financial crisis threatens and look for the ideal business financing solution. The following points show the areas to study in business financing;

Financing A Business Through Short-Term methods:

Short-term finance is needed to fulfill the current needs of a business. A business’s current requirements may include

  • wages and salaries
  • repairs
  • payment to creditors
  • taxes, etc.

Therefore a business may need short-term financing methods because payments for purchases and sales revenues are not always equal. As a result, short-term finance is necessary to create balance.

Below are some sources of business financing:

  • Bank Overdraft

    This is a well-liked business financing method. Bank overdrafts allow clients to withdraw more money than their available account balance. Thus it is easier for the businessman to meet short-term unexpected expenses.

  • Bill Discounting

    These can be discounted at the banks thus providing the required cash to the bill holder.

  • Financial Institutions

    Several financial institutions provide businesses with short-term loans to cater for their financial difficulties. Organizations like co-operative societies may extend credit to businesses to cover short-term expenses

  • Financing A Business Through Medium Term Methods

    A business needs medium-term finance to cover expenses that range from one to five years. These funds are needed for the modernization, balancing, replacing worn out machinery, and restructuring the business. The funds help the management to complete medium-term projects on time.

  • Hire Purchase

    Buying goods in installments allows a business to acquire stock and pay for it at a future date.

  • Financial Institutions

    Many financial establishments for example banks and industrial development banks give medium-term financial solutions to businesses. They also offer managerial and technical help on various issues.

  • Insurance Companies

    Policyholders or clients in an Insurance company pool their funds together in form of premiums paid. These funds are offered as loans to clients by the Insurance Company. In fact, several businesses take these loans to cover their medium-term finance requirements.

  • Financing A Business Through Long-Term Methods

    The money required for permanent projects or for a period of more than five years is termed as long-term finance. The money is used for modernization or to cover structural expenses in the organization.

  • Sale of Shares

    It is the most widely used method to raise funds for long-term use. The shares are purchased by members of the public to generate the required funds. And then shareholders receive a share of the loss or profit made by the organization.

  • Retained profits

    Money saved from profits can be utilized to fund long-term projects in the company.

  • Leasing

    This is another source of a business’ long-term finance. A business may use money generated from leased assets to acquire modern equipment thus avoiding the use of retained profits.

Conclusion:

The methods covered above are only some of the available sources of business finance. There are more ways in which one can get financial assistance to ensure a business runs smoothly. It is up to you as a business owner to learn the various methods to source money for your business.

Therefore, you should consider sharing this information in social platforms to assist other people and to get more information on the topic. By sharing this information with your friends on social sites you will gain more knowledge from those who may have detailed information and at the same time help those who have no clue about the topic.

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