Tuesday, March 3, 2015

External Financing Examples


Your business needs money - cash, credit, funding, financing - to operate and to expand. As a business owner, you need business funding to recruit and hire employees, buy assets, pay rent and building maintenance costs. Often, if your company is new or is growing rapidly, it is not generating  sufficient operational cash flow to finance operations. Therefore, you must look to external financing sources for much needed funds.

Credit Cards

Your business, like many companies large and small, may use credit cards to pay for smaller or regularly purchased items such as maintenance or office supplies, business travel, and similar purchases. However, some of your suppliers may allow you to use your company credit card to pay for purchases; this, in effect, converts your credit or charge card into a procurement card (similar to those used by large corporations to enable purchasing decisions at lower levels). In addition, although credit card companies often charge high fees for cash advances, you can use the credit card for a cash advance, essentially making your company credit card a  short-term line of credit.

Lines of Credit

Businesses can use lines of credit to fund working capital, which is the daily/weekly/monthly operational expenses such as vendor payments, supplier payments, payroll, and utility payments. In other words, working capital is cash or financing that you to fulfill anticipated short-term cash needs. Although most business owners think of banks when they think "I need a line of credit" (and banks do typically  provide the lowest cost credit lines), other financing entities such as inventory financing firms  and accounts receivable financing firms can and do provide lines of credit. entities or inventory financing vendors can also provide these credit lines. Credit lines are short-term, generally 12-months or less, but are typically renewable on an annual basis. 

Equipment Financing

Equipment financing is another form of external financing that many business owners access. Manufacturers, distributors, equipment vendors and wholly separate equipment financing entities all provide equipment financing; even banks provide equipment financing. Therefore, if you need financing to acquire equipment, you typically have multiple options, depending on your industry and the type of equipment you need to acquire. This financing can take the form of a loan or a lease, and can range from six month terms to longer terms of three or more years; the term is often determined by the equipment's useful life.


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