Sources of Capital
Companies, regardless of their size and sector, need funds to stay in operation and take on the investments and expenses. That are necessary to continue working and competing in the market. So everyone wants to know about the sources of capital through which they may generate funds for their businesses. Especially for entrepreneurship business funds are a real issue.
Fulfilling customer orders until collection, paying the payroll and quotes, buying new machinery or launching a product. To the market are just a few examples of daily activities of a company that need a certain financial capacity to carry out.
Sources for Small Entrepreneurs
- Conditional Sales: through an agreement that can make for advance sales that will meet your expenses before you give start a new business.
- Bartering: without the need to disburse cash offers or products making a trade for products. In Mexico this is called barter.
- Rent part of your house: if a space in your home can become a department or warehouse, consider it and put it on rent.
- Sale of assets not used: any personal assets that can be sold. Consider: savings bonds, stocks, real estate, art and jewelry.
- Credit cards: when shopping with a card, you have a period to settle the debt: between 40 and 52, depending on your court dates. Actually that is significantly free, as long as you pay the full debt. In this sense, you must be very careful with the interest rates, since they are the highest of the market.
- Credit with suppliers: set payment periods of 30, 60 or 90 days. This is a natural practice of financing in the business environment.
- Financing accounts receivable (factoring): credit guarantee usually take receivable. Look for a short term loan.
- Commercial Banking: one of the largest businesses of banking is credit. Carefully analyze the conditions, specifically what you will have to pay for interest payments.
- Credit Union: its goal is to serve members of Credit Union without profit. Because of this, interest expenses are more attractive than those of the bank.
- Double financing team: if you apply for a loan wing banks to buy equipment and then rent this equipment: use the equipment as collateral for credit and generate rental income.
- Financing through inventory: inventory is as collateral for a financial institution credit.
- Letter of Credit: if you make important equipment for the operation, for example, bank financing intermediate commercial activity of the amount of a letter of credit.
- Leasing equipment: if the machinery you need income to makes a comparative analysis of the income against your purchase.
- Rent Office: examines whether renting the space to operate the preferable to buy it. Sometimes, income can benefit you when you have cash flow problems.
- Micro-credit: the objective of such programs is to micro entrepreneurs are integrated into small loans.
- Sources of corporate capital: an investment corroborative labeled as follows:
- A) Agreement of use of licenses: is to transfer some rights over the products developed by the business in a certain period.
- b) Shared risk: better known as Joint Venture. You and another company will be associated and create a third company in which they will carry out a joint commercial activity.
- C) Partial purchase: occurs when an external company purchases part of the shares of your business.
- Plans Employee share ownership: it is possible directly to employees; Thus, capital enters the business exchange of converting them into partners.
- Venture capital: the advantage of negotiating with venture capital is access to large amounts of money.
Sources of Working Capital
Working capital is elementary for the normal functioning of any company so it is important to understand what their sources are in order to achieve better management of working capital. The main sources of working capital are indebtedness, capitalization and results of the company’s operations. Debt or financing is one of the most common sources for acquiring working capital. The financing can be acquired with financial institutions or with suppliers or creditors.
It is preferable to obtain financing from suppliers than from banks, since the financing offered by suppliers usually has a lower cost, but also a shorter term, but with an adequate rotation of accounts payable, a good access to capital can be guaranteed. Work without incurring financial costs. Capitalization is a more economical option to acquire working capital, but in some cases may mean some loss of control of the company to the extent that new members join or some partner acquires greater participation by virtue of capitalization.
Capitalization may be given by issuing new shares or by capitalization of profits , the last case in which there are no problems for a possible loss of control in the company. The other way to get working capital is through the dynamism of the company in its operations. This is in improving revenue, sales, so as to ensure a continuous flow of cash. This last source of working capital is perhaps the healthiest because this implies both dynamism and growth for the company. To the extent that sales increase, the company is not only able to make a steady and progressive flow of working capital, but in general can achieve great solidity in all financial aspects.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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