Funding Options: Short-Term & Long-Term Business Finance
Short-Term Financing
Overdraft (Banking)
Extending an upper limit of credit tells you the current balance. The bank accepts the overdraft depending on the solvency of the company.
Credit Account Policy
The bank offers a company account and a term. As long as you do not incur charges, you do not pay interest.
Factoring
Several companies offer factoring services:
- Buyer investigation and risk classification management.
- Bill collection.
- Coverage of commercial risk.
- Invoice finance up to a maximum of 85%.
- Sales accounting.
Supplier Financing
This consists of extending the maximum payment terms to our suppliers. A good method of short-term financing is offering discounts, such as 2/10 net 120. This means that the provider offers a payment period of 120 days or a 2% discount if payment is made within the first 10 days after receipt of order.
Confirming
A financial service charge paid to your suppliers. If there is no money to pay the bill at the time, bank financing sources are used.
Long-Term Financing
Capital Contributions
Capital contributions are made by partners. In individual entrepreneurships, the money is used to create their business. In a corporation, partners contribute money in exchange for shares.
Venture Capital
Venture capital firms invest in companies with potential. The investing company receives a share of the business and aims for a profitable exit by selling shares. A disadvantage is that the investing company often requires one of its executives to be involved in managing the company.
Reserves
A portion of the benefits are shared between partners, while the rest is stored in the company for future investments. There are legal reserves that require spending 10% of profits each year up to 20% of capital. Statutory reserves are agreed upon between partners.
Capital Increase
When a company needs capital investment, it asks its members. Partners have preferential rights to buy new shares or sell their preferential right to another person outside the company, resulting in an increase in the share capital of the company.
Emission of Obligations
When a large business needs money, it can appeal to the public to request payment in exchange for interest. The average duration of these loans is usually around 5 years, and the interest rate depends on the market at the time. This includes amortization of wear and tear as expenses or loss suffered on an asset’s value.
Leasing
The company leases a piece of real estate or equipment in exchange for periodic payments over a given term (2-5 years for movable properties, 5-10 years for real estate). Advantages: can be redeemed rapidly because of the company follows k in the amount of corporation tax paid disadvantages kuantitats ls: can not infer x fixed assets investment in materials affect the operation leasing: We lease with an option to purchase and veicle
Various Service Providers of Capital
Fixed or immobilized assets: the purchase of a fixed asset is a major expense, so the vendor may offer a financing system.
Funds to Finance Short and Long Term
Bank Loan
The lender provides funds to the company in exchange for interest.
Sold Assets
Fixed assets that are not used can be sold to release resources and reduce financial demand.