To finance a small business is a challenge. However, it can be worth the risk. The owner only has to spend a lot of time during its establishment, for it is an integral phase of growing a business. Hence, the owners need to take precaution allowing ‘time’ consume most of their effort for the business. Remember, finance is related to value, risk, and cash. Once it is managed well, a healthy finance mix in the business is attained.
In the achievement of believable financials, the development of a loan package and business plan may come into place. They can turn to an acquisition or expansion if carried out accordingly. Again, it will only take a matter of having a concrete project or business finance. The owner is responsible for devising this.
What is the best finance source for business?
There are various heads which can be studied to finance a business. These are the following:
Short-term finance can be the answer to the current needs of a business. These current needs refer to salaries, taxes, repair expenses, wages, or even payment to the creditor. The call for a short-term finance arises when the purchase payments and sales revenues are different from the same time. This occurs because there are times when the sales are low than the purchase. The sales may also be in the form of credit, while the purchases are done in cash. With this kind of disequilibrium, the short-term finance can be a perfect balance.
Among the sources of short-term finance are bill discounting, bank overdraft, advances from customers, bill discounting, bill of lading, installment of purchases, trade credit, and financial institutions.
Medium Term Finance
Medium Term Finance is necessary for a medium-term to be met. This runs for one to five years, which is the usual requirement for a business to avail the sourcing. This type of finance is the answer for modernization, balancing, and replacement of plant and machinery. The organization may also be re-engineered this way. A Medium Term Finance is the aid for the management to complete medium-term capital projects. This can be attained in an identified period of time.
Among the sources of medium-term finance are financial institutions, hire purchase, insurance companies and debentures and TFCs or Terms Finance Certificates.
Long-term finances are necessary on a permanent basis. This may work for businesses that are almost five years on tenure. These are usually desired so that structural changes can be met. This type of finance may be suited if an owner has to lock in some heavy modernization expenses. There must be a business plan that suggests a long-term development project.
Among the sources of long-term finances are retained earnings, equity shares, leasing, debentures, and financial institutions.
Indeed, there are different sources of finance. What is even good is that there is no fast or hard rule when it comes to understanding short, medium and long-term financing sources. There are always entities that may be of assistance when it comes to this concern.