5 Uses For Loans

Different Types of Finance to Help Your Business

We can look into various sources of finance that can aid your business in its daily and long term operations. These finance sources will be presented here briefly.

The present and current needs of your business can be accommodated through this first kind of business finance which is called the short term finance. Among the present needs of your business that need attending to are salaries and wages of your employees, tax payments, repair payments, payments to creditors, and others. It is a fact that what contributes to the need for short term finance is the imbalance of the inflow of sale revenues against the payments of purchases of the company. It is not uncommon for some businesses to have higher purchases compared to the inflow of sales revenues, or sales on credit basis while you have to pay in cash your purchases to produce the goods or services, where in this case, short term finance would come in handy. Banks can give you cash through bill discounting method and thus your finance for the current needs of the company will be met. Another way is to get advances from your customers who placed an order to you, and they can give the money if you confirm their orders so you can produce the orders. Short term finance can also come under loans using your bill of lading as guarantee, or you can purchase things for your operation using the installment method.

To further improve the operation of a business, it may need to balance, modernize or replace some machineries and structures, and thus you wold need the medium term finance which would need a span of 1-5 years. Commercial banks, financial institutions like industrial banks which also provide technical and managerial assistance, hire purchase like installment purchases, and debentures, TFCs and insurance companies, are sources of medium term finance.

For a more permanent basis and spanning around 5 years, a business can avail of the long term finance. Companies that need funds for their expansion, purchase of heavy modernization and structures to further develop the growth of the business would need this kind of finance. For large businesses, long term finance can come through equity shares, which are public subscription so that the capital base will flow in. Retained earnings can also be a source of long term finance where there is excess profits of the company coming from the income of the operation. If a company would like to acquire new equipment and without shelling out big cash, leasing could be another source of its long term finance. Other sources aside from financial institutions are debentures and participation term certificates that can give long term loans to companies.

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