Where can I get a source of finance for business or individual projects? Within the framework of the article, all options will be considered: both easy and complex. Also, attention will be paid to both popular methods of obtaining funds, and rather little-known or complex.
general information
Business financing is the ability to provide funds for the internal processes of a company or enterprise. Conventionally, sources of money, depending on the place of their occurrence, can be divided into two groups:
- Internal
- External
The first include net profit, depreciation, payables, stable liabilities, reserves for future expenses and payments, as well as deferred income. The second group includes authorized capital, funds of the state, citizens, financial and credit organizations, founders and participants.
When and where and what is used?
Internal financing of a business involves the use of those resources that are formed in the course of the economic activity of a commercial structure. In general, this is a more desirable option. Whereas external financing of a business involves the flow of funds from the outside world. Conventionally, they can be divided into those that come in the order of distribution and are mobilized in the market for monetary instruments. Before continuing the article, let's list all the sources of financing a business.
Where can I get the money?
As the basis and grouping, the sources of formation always act:
1. Formed by their own means.
I. Authorized, additional and reserve capital.
II. Net and retained earnings.
III. Depreciation.
IV. Accounts payable.
V. Sustainable liabilities.
VI. Revenue of the future periods.
VII. Targeted income.
Viii. Reserves for future payments and expenses.
IX. Other income.
2. Mobilized in the financial market.
I. Credit.
II. Dividends and interest received from ownership of securities of other issuers.
III. Income from operations with precious metals and foreign currency.
IV. Interest on the use of previously provided cash.
V. Sale of own securities.
3. Received in the order of distribution.
I. Financial resources that were formed on a share basis.
II. Budget subsidies.
III. Insurance premiums.
IV. Revenues from associations, industry structures and holdings.
Features
It should be noted such a pleasant fact: financial resources, in contrast to labor and material, are characterized by exceptional interchangeability. And now about the negative: they are also subject to devaluation and inflation. And one more thing, but it is more a matter of personal position. Previously, only two main groups were divided. Some researchers do not mention external sources as such, but talk about borrowed and borrowed funds, as well as about mixed (combined) financing.These three possibilities will be considered separately.
The most urgent problem, for the solution of which money is actually raised, is the need to expand or update fixed assets. Therefore, the specifics of fundraising and business financing will be discussed with an eye to this aspect.
Internal sources
Enterprises independently deal with the distribution of that part of the income that remains at their disposal after deducting the amount of cost and paying taxes. Rational use of funds involves the implementation of plans for the further development of the enterprise while respecting the interests of owners, investors and employees. There is one pattern. The more profit goes to expand economic activity, the less need for additional financing. Moreover, the value largely depends on the profitability of operations and the dividend policy adopted within the enterprise.
This method of obtaining funds has wonderful advantages: there is no need to incur additional costs, and the owner retains control of the enterprise. Alas, there are disadvantages. The most significant is the impossibility of applying this approach. So, in the case of fixed assets, a depreciation fund can be scooped out. And then you have to look for other ways to obtain financing.
Fundraising
This path is quite diverse, it has many positive and negative aspects. Due to the wide possibilities external sources will be given the closest attention. When conducting a search for injections of this type, one should be aware that investors are interested in high profits, the company itself, as well as the share of property that they will receive.
The more money is invested, the less control will remain with the original owners of the enterprise. A redemption for the market price or a certain coefficient depending on the income of the enterprise may be separately agreed. And you need to understand that this is more suitable at least for medium-sized enterprises and larger. Something can be said about financing small businesses, but this is the exception rather than regular practice. Well, in this case, it remains to concentrate on borrowed funds. For business, the most suitable is leasing and credit. Many compare them and say that they are literally identical, but this is not so. Let's see why.
Loans
These are the most famous main sources of business financing. A loan means a loan in monetary (less commonly in commodity) form, which is provided on a repayable basis. At the same time, interest is paid for its use. The advantage of a loan is that the receipt and use of funds, as a rule, is not governed by special conditions. And in case of issuance by the bank, where the enterprises are serviced, it is issued rather quickly and without delay.
There are, however, certain disadvantages. So, the period of issue rarely exceeds three years. Therefore, for enterprises that focus on long-term profit, it is unbearable. Another drawback is the requirement to provide collateral, which is equivalent to the amount issued. Although rare, certain special conditions may be put forward, such as opening a bank account that offers a loan. And this may not always be beneficial to the enterprise. Also, due to the use of the standard depreciation scheme, the company will have to pay property tax all the time while using the loan.
Leasing
We finish considering the sources of financing for small businesses and concentrate on a not very popular and well-known tool, which, nevertheless, is very worthy, if you understand its essence.
So, leasing is a special complex form of entrepreneurial activity, which allows one side to effectively update the used fixed assets, and the other to expand the boundaries of its presentation. And this happens on conditions that satisfy both parties. If we talk about business financing programs from external sources, then this can be called the best option.
What are the benefits of leasing? First of all, the lack of down payment and the requirement to immediately begin payment. Whereas in the case of a loan you need to pay from 15% to 60% of the down payment. Thanks to this, an enterprise that does not have significant financial resources can begin to implement a large project. In addition, using this tool is much easier than proving that you can afford a loan. It is financing of business projects at the stage of their beginning that allows you to make a choice in favor of leasing. In addition, the agreement is more flexible. Indeed, in this case, the enterprise independently calculates how much revenue it will have, and according to which scheme it will work. It can be agreed that debt repayment will come from the funds that will come from the sale of products. And after paying the full amount, the property becomes the property of the company.
