Published December 19, 2011
Financing involves different methods used to generate money for business or funding a project. There are many ways financing can be done such as loans, business credit cards, equipment financing or leasing, invoice factoring, business debt consolidations, and establishing a business line of credit.
In short term financing programs, borrowed money should be repaid within 12 months to avoid having to pay high interest rates and extra fees. Long term financing is also available to companies and it allows them to borrow money for a period of more than one year.
Any business or company can apply for business loans to banks or other financial institutions. Though it is difficult to obtain loans for the start up of a business, they can be obtained by offering collateral. A business can also get a loan to reduce taxable income or to supplement cash flow of the company. There are many private vendors who offer loans but they generally have higher interest rates than government based loans.
Business Credit Cards
Using a business credit card is similar to using a personal credit card. It is beneficial to use business credit cards to make payments because it means less cash handling and fewer checks to process. Also, if your business deals with online trading, then the use of business credit cards becomes vital because they help a company develop and increase a cash balance that can be used for other expenditures.
Business Line of Credit
Using a business line of credit, businesspeople can make their payments without handling cash or writing checks. Online business through merchant accounts almost always deals with this type of credit. A big benefit of having a business line of credit is that if you have just started a business and your cash flow is not sufficient, then you can use the credit to make purchases until your business picks up.
Nearly every business requires the use of equipment to properly function, but sometimes the equipment needed costs more than a company can afford. Equipment financing remedies this problem by creating a line of credit that can be used to purchase essential services. Basically, if a company does not have enough money to purchase the required tools, it can still get them through equipment financing.
Equipment leasing offers businesses an option to lease equipment when they do not want or cannot afford to invest the money needed to purchase them. Some companies actually prefer to lease equipment rather than purchase it because they avoid the headache of losing value through depreciation. So, if a company needs an expensive piece of equipment for a short period of time, short term equipment leasing is the best way to obtain it.
Invoice factoring is a business process that can be used to turn accounts receivable into cash flow. It is an important process that is used to keep track of cash flow and can also be used to determine if a company has enough cash for the future.
Business Debt Consolidation
Business debt consolidation is similar to personal debt consolidation. Some businesses apply for it to avoid bankruptcy and foreclosure, similar to how individuals do. It works by taking multiple loans and converting them into a single loan that makes it easy for a company to pay on a monthly basis.
Last Updated: December 19, 2011