SOURCES OF FINANCE

Sources of Finance for Small and Medium Companies

Sources of Finance for Small and Medium Companies

Introduction

Sources of finance are those mechanisms that allow a company to have financial resources to fulfill its objectives of creation, development, position and consolidation. It is essential to resort to credit in the ideal measure, i.e. it is strictly essential, because an excess amount can generate idle money. If the level, of funds decreases, then the company will not achieve its goal of profitability of the project. In business, there are a number of sources of finance that small and medium companies can access.

Organizations have the financial ability to achieve growth and development. Small and medium companies can redeploy the money generated, and use it for both internal and external growth opportunities. Opportunities generate economic value, but if a company fails to avail the opportunity, then two things may happen. The company may get absorbed by other aggressive companies more skilled or disappear by its inefficiency and incompetence.

Discussion

Managers are more concerned with looking inward, even backwards (called by some the corporate navel-gazing), instead of looking around and forward. They do not have an interest in the implications of new technologies and routed to 5 or 10 years, but to reduce its structure and respond to the last movement of the competition (reactive) or reduce production cycle (Walter 2003, Pp. 175-236).

Internal Sources

Issuance of shares.

Contributions of capital.

Retained earnings: Profits not distributed to members.

Depreciation funds: That is the amount, which companies charge as an expense for accounting purposes by the use of machinery and equipment, without the existence of any payment.

Sale of fixed assets.

External Sources

Bank loans

Companies can go for working capital or to have flow in the daily operation of the business. The significant thing is to compare products and go for one that best suits your personal needs and that credit should be tailored to suit the business requirements.

Bonus

They are an alternative source of external finance for the company. It represents a mortgage or charge on real assets of the company. In case of liquidation, mortgage bonds are paid before any claim on assets, plus bonuses are guaranteed regardless of performance success of the company (Snider 2010, Pp. 198-246). An interesting figure in the bonds is BOCEAS, Bono mandatorily convertible into shares, which is signed as a security purpose credit, through which companies raise funds as a loan. These are repayable over the medium to long term in exchange for constant profitability.

Leasing

It is an alternative form of financing, whereby the lessor (creditor) allows the lessee (debtor) to use an asset for a period in return for payments. The lender retains ownership of the property during the period funded, and the debtor recognizes a rental fee for the asset in use. The debtor has the option to purchase the asset, after some time at the residual value, usually agreed as a percentage of the initial value of the property (Porter 2006, Pp. 107-184).

Credit Cards

It is one of means of personal ...