If you run a start up business or a business that’s surrounded by competitors, losses are bound to appear in your records. In such cases, outsourcing for finance always gives you the boost you need to rearrange your business strategies and come up on top of the game. But you may think you have exhausted all the sources of business finance and become a finance outcast. But you can turn the tables around in 2019 and make use of the following sources of business finance.
Short Term Finance
Short-term finance normally come in handy when you have emergency business needs that must be addressed almost immediately. The current needs may include salaries or wages, taxes, payment to creditor, repair expenses among other reasons.
Most business owners go for short term finances because sales revenues and purchase payments are not always perfectly same. So the sales can be low as compared to purchases at times. Also, purchases may be on cash while sales are on credit. So these disequilibrium can only be matched by short term finance solution. The sources of this type of finance solution include the following:
• Bank Overdraft: This is a common and widely used source of business finance. This is where a business owner can draw a sum of money that is above his original account balance so as to settle the unexpected expenses.
• Bill Discounting: Banks can discount the bills of exchange to offer cash to the holder of the bill.
• Advances from Customers: Most established businesses receive advances as a way of confirming the orders. However, most businesses use them as sources of financing their operations.
• Installment Purchases: You will have more time to make payments when you purchase on installments. This means that you can use the deferred payments as a source of financing small expenses within your businesses.
• Bill of Lading: You can easily take a loan from a bank if you have bill of lading and other import and export documents. You can use the loan to offset some debts for a short time period.
• Financial Institution: Most businesses that sre faced with financial difficulties go to financial institutions for short-term loans. There are also certain co-operative societies that can offer businessmen short term financial assistance.
• Trade Credit: A good number of businesses will buy raw material, store and spares on credit. This transaction normally results in increasing accounts payable of the business which must be paid after a certain period of time. In this case, goods are normally sold on cash and payments made after 30,60 or 99 days. So businessmen will have the chance to meet their financial difficulties.
Medium Term Finance
Just as the name suggests, this finance meets the medium term requirements of your business of 1-5 years. Most business owners go for this type of financing to balance, modernize and replace machinery and plant. The sources of medium term finance include:
• Commercial Banks: Commercial banks stand out as the major source of medium term finance. Businesses get loans from them for different time period and against appropriate securities. The loan can also be re-negotiated at the termination of the terms if required.
• Hire Purchase: This means buying on installments. This business financing allows you to have the required goods then make payments in future and follow the agreed installment.
• Financial institutions: Financial institutions also provide medium and long-term finances. You can also ask for technical and managerial assistance on different maters.
• Insurance Companies: Policy holders contribute a large amount of money to insurance companies. So the companies also grant loans and invest with this pool of funds. Various businesses can make use of these loans as a source of medium term financing.
Long Term Finance
Long term finances are required on payment basis that stretches for more than five years. Most businesses use them for heavy modernization expenses or meet structural changes. The sources of long term finance include:
• Equity Shares: Equity shares are normally subscribed by the public to gather capital base of a large scale business. In this case, the share holders will share the profits and the loss.
• Retained Earnings: These are the reserves generated from excess profits. They come in handy in times of need to finance a business project. This is what is commonly referred to as ploughing back profit.
• Leasing: Leasing helps a business to acquire new equipment without going through a heavy outflow of cash.
• Financial Institutions: Financial institutions can also provide long germ business loans.
Therefore, your business in 2019 will have different sources of business finance, it can stand on. There is no hard and fast rule that differentiates short and medium term or medium and long term sources. All these sources are used to raise funds for the business.