The capital required to start a business is called business finance. If you are considering starting up your own business, or if you have an existing business and are considering expansion, you will need money. The sources of finance of business can be both short term as well as long term.
Here is and obligatory to get the transaction conducted as quickly as possible. Short term business finance is earmark for both new and existing businesses. Short term business finance facilitates businesses and financiers to seize quick business opportunities that require transactions to be completed in short time. The highlight of this kind of finance is its prompt availability to the businessman.
There are different types of short term business finance which are:
- Bank loans
- Credit card
- Trade credit
Loans that are given by the bank for less than one year are considered as short term finance. However, this can be expensive since there are interest payments to be made which can sometime vary. Bank loans are a highly pliable option for short term business finance. The length of time that the loan has to be repaid in can change.
If something is bought using a credit card, the businessman is entitled to a certain period of time to either pay the full amount or a partial amount. This is the short term source of business finance that is very similar to trade credit. This can be a very helpful, practical and low cost way of expense management if the payment is made in full. Most of the businesses have a corporate credit card.
A lease arrangement on a product might mean that the company pays out a certain amount of money per month for a specific number of years. At the end of the time period the product is returned to the owner. Lease is often referred to as hiring.
This source of short term business finance implies that the business is paying for the use of a product but it does not own it.
Lease agreements have the following advantages:
- The owner of the product is accountable for the upkeep and this reduces the business costs.
- The payments are usually fixed and do not change with the change of interest rates.
- This makes the business operate more efficiently.
Trade credit usually doesn’t cost anything since the vendors offer it as an inducement to continue doing business. Trade Credit is also an excellent way to finance stocks, which refers to the number of days the vendor will allow before the payment is due. Trade Credit cycle usually runs for a period of 28 days.
But sometimes businesses may not pay back the loan for much longer duration. This grants the business the time to be able to deal with their finances, and balance their cash flows more expeditiously.
Short term business finance permits the organizations to take advantage of sudden opportunities to make extra revenues or capture business ahead of the competition. The better and more dependable the short term sources of financing, the more competitive the organization will end up being.