Different Ways of Obtaining Business Finance
If you ever have any interest in understanding business, one of the primary things to know is the business finance. The first thing you need to know is about the short-term fund. When it comes to short financing; it refers to the cash that a business needs to address its immediate needs. A business may need short-term funding to cater for taxes, wage payments or salaries, repair expenses among others.
The reason for that need is that sales and purchase payments are not always the same. You may find a situation where those who are buying from the business are doing that on credit while the business purchases products cash. That will make a significant difference when you are comparing purchases and sales. In this case the business owner is entitled to withdraw more money from the bank above what the company has deposited in the account. There are several sources of short-term finances which are as follows. You can have so many origins o short-term finance as listed below. One of the primary sources is the bank overdraft. One of the widely used sources of the business financing is the bank overdraft.
The another source is when bills of exchange are cut by the bank. That can become a source of money to the owner of the bill immediately to cater to the pressing needs. Some time businesses may ask customers to pay in advance after confirming orders. Sometimes that is what the companies use when they are supplying the orders. Another source that many firms use is the installment purchase. What happens is that the deferred payments are used to take care of other financial needs. it is also needed at times to use the bill of lading as a source of business finance by obtaining loans from the bank.
Businesses also use trade credit as a source of finance for their immediate needs. This is a situation where businesses buy raw materials and spare parts on credit. That means that the businesses increase their bills payable to be paid in future. when the goods are paid the money is not paid immediately, and that money can be used for other needs.
There is also what is known as medium-term finance. This is a situation where the business needs to meet some medium-term like say five years requirements. In most cases businesses will need this kind of financing when they want to buy some equipment. Normally medium-term financing is obtained in financial institutions like the bank. What the banks do is to provide the money needed to buy the equipment and the business is left to pay in installments. The the firm also uses hire purchase to obtain the machinery. The purchaser is permitted o pay some amount and the rest to be paid is small monthly installments.