Every entrepreneur or financial manager of a company has the responsibility to make the financial decisions that best suit the situation of the same or the project that is intended to develop.
There are many reasons why a company has financing needs. For each one of them, it will be necessary to evaluate the different funding sources to which one can choose. In this article, we tell you about payday loan consolidation https://consolidationnow.com/.
The choice of method to finance your company
It is very important to have your financing needs clearly defined since applying for financing generates a cost, which will depend on the selected method and other factors that we detail below. Therefore, it is advisable to specify these needs as much as possible based on the analysis prior to the decision of the method.
Once the situations or projects to which to allocate the funding have been directed, it is assessed which method to choose, fundamentally, based on three factors:
- Amount: The purpose for which the financing is destined will determine the estimate of the amount I need to cover it.
- Term: It refers to the period of time in which I need to cover my needs and, on the other hand, we must also take into account the period over which I have the ability to return the money they lend me.
- Interest rate: Refers to the price of money. It is calculated according to the term, quantity, and risk.
These three factors are closely linked to the choice of method. There are many methods subject to different terms and interest rates that will vary, also depending on the amount.
Now let’s see some of the most used methods …
Methods to finance your company
Whatever the size of your company, you can obtain financing through different channels. The three factors above are going to play a decisive role in the choice of method, so you have to take them into account.
Some of these different methods that can be chosen to obtain financing are:
The advance of commercial loans is that operation that allows your company to finance short-term anticipating the right to collect commercial credits or invoices for operations of the company’s commercial activity.
The amount is anticipated until expiration although the date can be adjusted, most entities accept certain flexibility depending on the needs of the company.
Discount lines or promissory notes
The discount lines allow you the amount of a credit or title can be disposed of before expiration. To this amount, you will be deducted a certain amount that will go depending on the period you have left for your term (less time-less discount, and vice versa, the longer period-greater discount rate).
It is one of the largest sources of financing of working capital of companies in the short term to provide liquidity to companies through this discount of commercial effects.
The confirming or management of payments to suppliers is an operation offered by financial entities in which a contract is agreed on the extended payment terms on the date on which the invoice is issued.
It is a payment tool that allows the supplier to have the collection of invoices before the expiration date that had been previously stipulated with the company, with the discount of interest that will be based on the time in advance.
Factoring is a financial operation that is responsible for managing the collection of your client portfolio in whole or in part. The idea is focused on providing your company with the money from these invoices without having to wait for the original expiration.
The interest charged for this operation will be based on the advance term and also, if the invoice is returned by your client, the main and total amount of the invoice will be charged with the corresponding return expenses.
It allows the company to have immediate liquidity that does not generate debt because it is a real exchange of collection rights.
The renting can be considered a source of business financing if it is taken from the perspective that the renting, is intended to finance 100% of an investment not being circulating as such.
It is a lease on any type of movable or immovable property that includes maintenance, tax, insurance, and revisions. Generally, it is done on computer equipment, office machinery … It is a very comfortable method since it makes an uncertain cost of an investment, a fixed and constant cost.
Accounting does not affect the financial structure or balance so many companies benefit from it to pay less in the Corporation Tax. Be careful with the clauses that are set in the contract because if they are exceeded, the commissions can be very high.
Credits are financial transactions through which a company applies to an entity, an amount of money subject to a fixed limit. The customer is not given the amount 100% at the beginning of the credit but will be using it according to their needs without having the obligation to use it in full. The interest charged is calculated on the balance actually arranged together with a commission on the unpaid balance.
As you go back, you can get more. In addition, at the end of the credit can be renewed or extended.
In the lender (person or entity that delivers the money requested) delivers a fixed amount to the borrower (person or company that receives the amount) at the beginning of the operation with the condition that it is returned within a period and together with the agreed interest s about the total amount.
The return of the entire amount delivered (or amortization of the loan) will be made through regular installments throughout the period of time before its expiration.
Unlike credit, the loan has a fixed life.
Due to the financing needs of companies and especially by small and medium enterprises, new modalities arise, such as the one we, MytripleA, provide to the entrepreneur.
Through MytripleA SMEs, self-employed and entrepreneurs get alternative financing to banking through crowdlending. Crowdlending is a financial activity in which a company obtains financing through loans that are financed entirely by private investors. It’s simple if you want to know more about the crowdlending click here.
The importance of training in financing methods for companies
Finutive has created a free online course for SMEs on financial administration in which we collaborate. If you sign up you will receive free lessons in your email, so you can enjoy this content forever. Sign up for free here.
Finutive is a tool for SMEs to manage their finances and treasury in a simple way. It allows you to connect your banks and your invoice information to receive an automatic and automated analysis of your bank positions and your positions with clients and suppliers. This allows Finutive to advise you on the current situation of your business, forecast your future cash situation projecting your cash flow and finally advise you on financial products for your business.