Raising finance for any business is an essential task as it widens the scope of carrying out the business for owners. There are various sources available in the market to which an owner can pursue to raise funds. Every source has its own advantages and limitations.
This is short term source of funding and is considered to be one of the effective sources of funding. For companies who have good credibility in the market, then bank would readily provide overdraft to the company. It is important for the bank to check business paying capacity and if everything seems fine, then additional borrowing facility shall be provided by the bank. The bank charges interest on the amount borrowed from bank which is in excess to the funds present in the bank account of a business owner. Overdrafts are preferable in comparison to other options because they are easy to get and moreover user will have to pay interest amount only on the amount used and not for the whole O/d limit.
It is a long term funding source, wherein bank lends the money to business house for a longer period of time at a pre determined interest rate. Before a bank loan can be procured, business owner is required to prepare for it. One should prepare a business plan to explain the bank the need of finances and to also clarify them how the bank loan shall be repaid. If the banking authorities find the facts stated justifiable, they may extend the loan to the company.
Government and other local authorities have different grants which have been made available to both companies and individuals. Such grants are sanctioned to business owners for meeting business, political and economical needs and the best thing about these grants is company is not expected to repay it. Grants are available to companies in specific situations as listed below;
- One should have business idea or project clearly in mind.
- If a company is able to partly finance the project.
Leasing out factory space or machinery eases out operations of a company, and the cash outflow of such leasing can be comfortably distributed in different periods. However before availing such lease, one must make sure that the term to finance should not exceed the life of machinery as it may lead to negative equity for business.
It enables the company to raise funds immediately and is considered one of the best options of raising funds for short period of time. Clients invoice can be sent to the factoring company, and in return the factoring company pays 80% or more value of invoice to the company to meet his funding needs. Later in future the factoring company can collect his money from party to the invoice in full.
It is a long term investment plan wherein huge lending and borrowing amount is involved. Big companies who are interested in providing finance look for opportunities wherein they can invest money, and they enter into contracts with big companies who are capable of repaying it back and charges a huge sum of interest against such lending.