This is a guest post by Umair Maqsood. You can follow Umair @UmairMaqsood on Twitter.
FINANCING BUSINESS GROWTH
No business activity can take place without money. The availability of sufficient funds or capital is one of the many factors that determines the growth and success of any business. Whether your business is in its initial or development stage or it is in its boom, without financing growth is limited. But where can the financing come from? This is a question that has always troubled entrepreneurs.
Sources of finance can be divided into two broad categories: internal sources and external sources with the latter having two further types, long term and short term.
Internal Sources of Finance
Internal sources are basically for running businesses that have been operating for a reasonable period of time. Following are some internal sources of finance:
- Retained Profits: Around 65% of all business funding comes from retained profit. This is the profit after tax that has not been returned to the owners. This is the cheapest source which obviously involves no repayments or interest charges.
- Disposal of Assets: an established business may be in the position to sell an asset that it no longer requires – for example surplus equipment or unused buildings – to raise funding. This makes a better use of tied up capital.
External Sources of Finance
Unlike internal sources, external sources of finance are used by developing businesses and established ones can make use of it as well. As mentioned earlier, external sources are divided into two further types: long term and short term sources.
LONG TERM FINANCING:
- Share Capital: this source is strictly applicable in limited companies. Issuance of different types of shares in the stock market is a great way to source funding.
- Long term Loans: Lending businesses offer loans and other facilities to businesses and individuals with a reasonable credit history and financial status. A certain rate of interest is charged on the amount. This source is widely used by businesses in their start up stage. There are some loan companies which lend against cash payables.
- Venture Capitalists: these are businesses, organisations or individuals that are prepared to invest in growing businesses, hoping for some return in the future.
- Mortgages: a mortgage is a loan from any financial institution like a bank where the lender must use land or property as a security against which the loan is approved.
SHORT TERM FINANCING:
- Debt Factoring: there are specialist agencies that buy a company’s debt in exchange for immediate cash. Through this method the risk of collecting the debt will be retained by the factor.
- Overdraft: this is a special facility provided by banks to its account holders in which the customer is permitted to withdraw excess of the funds that are actually available to him. This overdraft amount is sanctioned against a rate of interest charged on a daily basis.
Some people even try to finance their start-up or side business using a payday loan from a company like www.Speedy Loan.com payday loans because they provide quick cash overnight. These companies operate around the world and the rules regarding interest rates and repayment vary.
No matter what form of financing you choose, be sure you will be able to repay the amount borrowed or your business and credit rating will be at risk.
DISCLAIMER: This is NOT a paid post and no money or other value was received for publishing it.