The Beginner’s Guide to Businesses

Different Types of Finance to Help Your Business

If you belong to the business world, know that there are several kinds of finance that can help the short and long terms of your business activities. Here we can present briefly these various kinds of finance sources.

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. Note that it is not all the time that the sales revenues and payments of purchases would come at the same time, and thus there is an imbalance of funds that need to be fulfilled through short term finance. It is normal for a business to have low sales compared to the expenses spent on purchases, or payments of orders are on credit or installment basis while the operation needs to purchase on cash basis, thus your business needs short term finance. You can have short term finance through bill discounting where you are given cash by banks to finance your present needs in operation. If you have orders and you confirm it, some clients can provide advances to your company so that you can produce their orders. Other sources of your short term finance is to loan against your documents, or you buy materials on the basis of installment.

The next type of finance is the medium term which can be used for a business that requires 1-5 years of use for balancing, modernization and replacement of machineries and structures to operate further the business. 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.

The next type of finance is the long term finance which a business can make use for as long as 5 years. 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. To generate big capital base especially for big establishments, sources of long term finance can come from equity shares where shares are subscribed t the general public to attain the capital base much needed. 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. Companies can get long term loans not only from financial institutions but also through debentures and participation term certificates.

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