Guidelines to Help You When Choosing the Right Finance Company
Sources of business finance can be categorized in different ways. The current needs of a business are satisfied by the short-term finance. Current needs are needs which include tax payments, payment to creditors or payment of salaries and wages. Short term finance is necessary because purchase payments and sales revenue are not perfectly similar at all times. It is evident that the transactions can be sometimes lower than the purchases. The sales can be done on credit, but when buying there is no credit. To match this disequilibrium, short-term finance is consequently necessary.
Short term capital comes from different sources. One of the forms of short-term finance and many people use this type as a source of business capital. Under bank overdraft, a client can remove some money from his or her account above the bank balance. Such a form of capital helps the business person to meet the unexpected short-term expenses easily. Bill discounting is the other form where Bills of exchange can be discounted at the financial institutions. Bill discounting is essential because it provides cash to the bill holder so that he or she can settle immediate financial needs. Advance to customers are received and demanded order confirmation but they also help in financing the current orders. Purchases on installments provides enough time for the businessperson to make the necessary payments. Export, import documents and bill lading are used as a guarantee to take a loan from the bank, and the loan can be used in financing short-term expenses. Short-term expenses can also be settled using the short-term loans which are gotten from the financial institutions.
Medium term finance is another type of business finance used in settling medium-term requirements. Medium-term finances are fundamentally necessary for the balancing, renovation, and replacement of machinery and the plant. Re-engineering the organization is also another use of medium-term money.
There are different sources of medium-term finance. Commercial banks help business people in solving medium-term expenses. Business people get loans from commercial banks for different time periods against the relevant securities. Hire purchase can also be a source of medium-term financing, and it consists in buying products in installments. Hire purchase allows the company to have the required goods, but they are paid for in the future. Some financial institutions also provide long-term loans to businesses.
Long-term finance is the last form of business capital and is used on permanent basis or for a period of more than five years. They are used in massive modernization of the industry and achieving the desired structural changes in the organization. Business projects can be done using capital from equity shares or retained profits.