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In today’s business world, many financing options are made available to all types of businesses. The main objective for business financing, is to obtain the required funds in order to meet the establishment’s everyday obligations. In a competitive market, businesses have different requirements for financing, which may range from a business loan to acquiring a new property. Furthermore, the required funds must be obtained at minimal cost ensuring repayment obligations by the business.
Types of financing for companies: debt and equity.
Debt must be paid back, but it is often cheaper than raising capital due to tax considerations. Equity does not need to be paid back, but it relinquishes ownership to the shareholder. Both debt and equity have their advantages and disadvantages. Most companies use a combination of both to finance operations.
A company may use various kinds of debt to finance its operations as a part of its overall corporate finance strategy.
A term loan is the simplest form of corporate debt. It consists of an agreement to lend a fixed amount of money, called the principal sum or principal, for a fixed period of time, with this amount to be repaid by a certain date. In commercial loans interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date, or may be paid periodically in the interval, such as annually or monthly.
Debt is easier to obtain for small amounts of cash needed for specific assets, especially if the asset can be used as collateral. While debt must be paid back even in difficult times, the company retains ownership and control over business operations.
Equity is another word for ownership. Companies like equity because the investor bears all the risk; if the business fails, the investor gets nothing. At the same time, giving up equity is giving up control. Equity investors want to have a say in how the company is operated, especially in difficult times. So, in exchange for ownership, an investor gives his money to a company and receives some claim on future earnings. Some investors are happy with growth in the form of share price appreciation; they want the share price to go up. Other investors are looking for principal protection and income in the form of regular dividends.
Genesis World will provide you with professional and personalized consulting advice. We will assist you during the full financing process. Different financing options will be presented to you in a businesslike manner. Our goal is for you to succeed in your endeavours.
Genesis World collaborates in partnership with financial establishments which grant both traditional and non-traditional financing alternatives.
Business Financing - Demystified!