Sources of Business Finance (I)
When starting a business, a key element is choosing the most appropriate source of funding, depending on the characteristics of the company or the purpose that they want to give money.
When funded, any business, large or small, old or new, should combine resources of self and others in a balanced manner. The latter are those from external agencies or bodies, whether banks, venture capitalists, business angels, or even customers and suppliers. On the contrary, are equity funds (goods or money) contributed by the business partners, and the benefits generated by the business and not distributed, but the partners agree to give the book greater society funding.However, these resources themselves can be seen stocks depleted by the loss of business, the company can reach a situation of technical insolvency occurs when the sum of the losses and what “we” to third parties (banks, suppliers, investors) exceeds the value of what the company “has” (goods, money, credit, customer, etc.)..
The choice of external funding formula is complex and must conform to the characteristics of the business or destination that you want to give the money collected. In this sense, there are several questions to be asked to “pick and right” in the financial instrument selected:
Do I need funding to purchase long term assets, or to meet temporary liquidity needs?
Do we know exactly how much money we need, or may be variable in time?
How much money will I be charged for allowing me the money?
What are the fees that they charge me?
What arrangement expenses will I have?
“The cost and time are basically those that determine the choice of a financial or other. All have their advantages and disadvantages. Do not forget also that the composition of debt and equity depends credit quality of debt, and therefore its associated cost, “says Carmen Aranda, a professor at the Faculty of Economics, University of Navarra. “The optimal use of various products that the company can finance its assets and impact their daily functioning, very importantly, the profitability of the business,” Aranda says, “so it is interesting to know the characteristics, advantages and disadvantages of various forms of funding. ”
Companies (corporations) use the issue / extension of equity securities (securities that represent ownership that a person is a part of that society) for resources. Who supports the new shares or shares issued, whether natural or legal person, becomes the owner of the company, “with all the attendant consequences,” says Professor Aranda. However, these capital can also serve to reduce existing debt, for example, the partners themselves, who have been putting money into the company by way of loans, or even can be done against existing loans. In this way the company reduces “which should” and can be a rebalancing.
Another way of internally funded, which is used by both large enterprises as SMEs, is to draw on the benefits of years, past reserves. This is what is called self-financing. It is, as said before, no spreading the benefits of the company among the members, but to let stay in the house. In turn, the expansion can be self-financing through retention of profits, or maintenance, through the establishment of sinking funds and supplies.
Source: www.navactiva.com/es/documentacion/fuentes-de-financiacion-empresarial_34382
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