The financial services sector is a major economic driving force. This is what enables the free flow of capital as well as liquidity in the marketplace. If this sector is strong, it means that the economy will grow. It also means that the companies within this industry are more equipped to manage risks.
It’s a given fact that any company requires capital for it to operate. The best way to do this would be through sales. There are times however when other immediate financial solutions are needed.
Every stage of business growth requires a different source. A lot of start-ups rely on family, friends, and also local associates. As the business grows it may be necessary to find alternate sources such as venture capitals. Once you have established a financial track record, you may resort to other sources such as commercial loans and asset based lending.
The following are some of the major financial solutions and additional options that may have been overlooked:
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Asset-based Financing
This is becoming a popular financial solution now. It functions as a means to ensure financial growth and provide capital for starting up. This is the general term used to refer to that procedure when the lender accepts as collateral the company assets in exchange for a loan. Most of this type of loans are financed against accounts receivable and quite less on the inventory. Receivables self-liquidate in just a short time which is why it is preferred by many lenders.
Venture Capital
For any start-up business, one of the major challenges is finding the capital. A business in its initial phase may find it difficult to get a loan. That is where venture capital can help. Venture capital firms offer start-ups the capital in exchange for company equity.
Lines of Credit
This financial solution is designed to provide short-term debts for a company to retain a positive cash flow. Loan repayment takes place later when the funds are generated. This is also quite popular. Most commercial banks offer a revolving line of credit which makes a fixed amount available for those who need it. This is advantageous since it does not incur interest until the funds are withdrawn.
Long-Term Debt
Long-term debt is that financial solution where the interest as well as a percentage of the principal are repaid in equal installments within the life cycle of the loan. The sources of this type of financial solution are commercial banks, government-sponsored loans, private lenders, and small business investment firms.
Floor Planning
Floor planning is an asset-based lending method for companies to finance their inventories. The inventory’s financing is based on the credit of the vendor and also that of the company that will receive the financing. The inventory bought functions as the collateral until the sale is done.