Introduction
Of all the activities of a business, raising capital is one of the most important. The way to get that capital is what is called financing. Through financing, companies are given the possibility of maintaining a stable and efficient economy, as well as of continuing their commercial activities; This brings as a consequence, granting a greater contribution to the economic sector to which they participate.
Abstract
Of all the activities of a business, from raising capital is the most important. The way to get that capital is what is called funding. Through the financing, you are given the possibility to companies to maintain a stable and efficient economy, as well as to continue their business, this results, provide a greater contribution to the economic sector to which they participate.
Funding sources
Financing Sources Personal Savings: For most businesses, the main source of capital comes from savings and other forms of personal resources. Often, credit cards are also used to finance business needs. Friends and relatives: Private sources such as friends and family, are another option to get money, it is provided without interest or at a low interest rate, which is very beneficial to start operations. Banks and Credit Unions: The most common sources of financing are banks and credit unions. Such institutions will provide the loan only if you demonstrate that your request is well justified. Investment capital companies:These companies provide assistance to companies that are expanding and / or growing, in exchange for shares or partial interest in the business.
Short-term financing
Short Term Financing is made up of: Commercial Credits Bank Credits Promissory Notes Lines of Credit Commercial Papers Financing through Accounts Receivable Financing through Inventories.
Commercial Credit: It is the use made of the accounts payable of the company, of the accumulated short-term liabilities, such as taxes payable, accounts receivable and inventory financing as sources of resources. Advantages of commercial credit It is a more balanced and less expensive means of obtaining resources. It gives companies the opportunity to streamline their business operations. Disadvantages of commercial credit There is always the risk that the creditor does not pay off the debt, resulting in possible legal intervention. If the negotiation is done on credit, passive rates must be paid
Bank Credit: It is a type of short-term financing that companies obtain through the banks with which they establish functional relationships. Its importance lies in that today, it is one of the most used ways by companies to obtain financing. Advantages of a bank loan The flexibility that the bank shows in its conditions, leads to more probabilities of negotiating a loan that adjusts to the needs of the company, this generates a better environment to operate and obtain profits. It enables organizations to stabilize in the event of capital stress. Disadvantages of bank credit A very strict bank in its conditions, can seriously limit the ease of operation and act against the profits of the company.A Bank Credit carries a passive rate that the company must pay sporadically to the bank for interest.
Promissory note: It is a negotiable instrument, it is a written unconditional, directed from one person to another, signed by the formulator of the promissory note, where he agrees to pay his presentation, on a fixed date or determinable future time, a certain amount of money along with interest at a rate specified to the order and to the bearer. The notes are derived from the sale of merchandise, cash loans, or the conversion of a checking account. IOUs generally carry interest, which becomes an expense for the drawer and an income for the beneficiary. These negotiable instruments must be paid when due. There are cases in which it is not possible to collect the promissory note at maturity, for which legal action is required. Advantages of the promissory note It is paid in cash. There is high security of payment,at the time of any commercial operation. Disadvantages of promissory notes The legal action, at the time of any default in payment.
Line of Credit: Means money always available in the bank, but for a period agreed in advance. The line of credit is important, because the bank agrees to lend the company up to a maximum amount, and within a certain period, at the time you request it. Although it is generally not a legal obligation between the two parties, the line of credit is almost always respected by the bank and avoids negotiating a new loan every time the company needs resources. The advantages of a line of credit It is a cash; that the company can count on. Disadvantages of a line of credit A percentage of interest must be paid each time the line of credit is used. This type of financing is reserved for the bank's most solvent clients, and if it is given,the bank may ask for other guarantees before extending the line of credit.
The requirement to the company by the bank to maintain the Clean credit line, paying all the provisions that have been made.
Commercial Papers: This source of short-term financing consists of the unsecured promissory notes of large and important companies that are acquired by banks, insurance companies, pension funds and some industrial companies that wish to invest their surplus temporary resources in the short term.. Commercial paper as a source of short-term resources is less expensive than bank credit and is a complement to the usual bank loans. The use of commercial paper is another financing alternative when banks cannot provide them in tight money periods or when the company's needs are greater than the financing limits offered by banks. It is very important to note that the use of commercial paper is to finance short-term needs, such as working capital,and not to finance long-term capital assets. Advantages of commercial paper It is a less expensive source of financing than Bank Credit. It serves to finance short-term needs, such as working capital. Disadvantages Commercial Paper emissions are not guaranteed. They must be accompanied by a line of credit or a letter of credit in difficulty of payment. Trading through this means generates a cost for a premium rate.Negotiation by this means generates a cost for a premium rate.Trading through this means generates a cost for a premium rate.
Financing through Accounts Receivable: Consists of selling the company's accounts receivable to a factor (sales agent or accounts receivable buyer) pursuant to a previously negotiated agreement, in order to obtain resources to invest in it.. Advantages This method provides several benefits, among them are: It is less expensive for the company. The risk of default decreases if the company decides to sell the accounts without liability. There is no collection cost, since there is an agent in charge of collecting the accounts. There is no cost from the credit department. Through this financing, the company can obtain resources quickly and with practically no cost delay. Disadvantages The cost of commission granted to the agent.The possibility of legal intervention for breach of contract.
Financing through Inventories: For this type of financing, the company's inventory is used as collateral for a loan, in this case the creditor has the right to take possession of this guarantee, in case the company ceases to comply. It is important because it allows the directors of the company to use their inventory as a source of resources, with this measure and in accordance with the usual specific forms of financing such as: Deposit in Public Warehouse, Storage in the Factory, Receipt in Custody, Floating Guarantee and Mortgage, resources can be obtained. Advantages of this financing. It allows to take advantage of an important piece of the company such as its inventory. It gives the organization the opportunity to make its activities more dynamic. Disadvantages It generates a Cost of Financing to the debtor.The debtor runs the risk of losing his inventory (guarantee), in case he cannot cancel the contract.
Long-Term Financing is made up of: Mortgage Shares Bonds Financial Leasing Supports granted by the Ministry of Economy Microcredit FONART Credit SME Credit FONDESO Financing.
Mortgage: It is when a property of the debtor passes into the hands of the lender (creditor) in order to guarantee the payment of the loan. A mortgage is not an obligation to pay because the debtor is the one who grants the mortgage and the creditor is the one who receives it, in case the lender or creditor does not cancel said mortgage, it will be taken from him and will pass into the hands of the borrower or debtor. The purpose of mortgages for the lender is to obtain a fixed asset, while for the borrower it is to have security of payment through said mortgage, as well as to obtain a profit from it through the interest generated. Advantages of the mortgage For the debtor or borrower, this is profitable due to the possibility of obtaining a profit through the interest generated from said operation. It gives the borrower assurance of not getting lost,when granting the loan. The lender has the possibility of acquiring an asset. Disadvantages. The lender generates an obligation to third parties. The risk of some legal intervention arising, due to non-payment.
Actions: It is the equity or capital participation of a shareholder, within the organization to which it belongs. Shares are important, since they measure the level of participation and what corresponds to a shareholder on the part of the organization they represent, either by way of dividends, shareholder rights, preferential rights, etc. Advantages Preferred shares give the necessary and desired push to income. Preferred shares are particularly useful for company merger and acquisition negotiations. Disadvantages Dilute control of current shareholders. The high cost of issuing shares.
Bonds: It is a certified written instrument, in which the borrower makes the unconditional promise, to pay a specified amount and on a certain date, together with the interest calculated at a certain rate and on certain dates. Bond issuance can be advantageous if its shareholders do not share their ownership and profits of the company with new shareholders. The right to issue bonds comes from the power to borrow money that the law grants to corporations. Advantages of bonds as a form of financing They are easy to sell, they already cost less. The use of the bonds does not change or lessen the control of the current shareholders. With bonds, the liquidity and working capital situation of the company are improved.Disadvantages The company must be very careful when investing within this market, find out.
Financial Leasing: Contract that is negotiated between the owner of the goods (creditor) and the company (lessee), which is allowed to use those goods for a specified period and by paying a specific rent, the stipulations may vary according to the situation and needs of each of the parties. The importance of the lease lies in the flexibility it provides for the company, it gives possibilities to adopt an immediate change of plans, to take an unexpected action in order to take advantage of a good opportunity or to adjust to changes that occur in the midst of the operation. The lease is provided in parts, which allows the company to use this means to acquire small assets. Lease payments are tax deductible as operating expense.Leasing may be the only way for the company to finance the asset acquisition. Other advantages Avoid risk of rapid obsolescence for the company since the asset does not belong to it. They give small businesses opportunities in bankruptcy. Disadvantages Some companies use leasing as a means of avoiding budget constraints, regardless of whether capital is limited. A lease requires an interest rate to be paid. It is more expensive than the purchase of assets.Disadvantages Some companies use leasing as a means of avoiding budget constraints, regardless of whether capital is limited. A lease requires an interest rate to be paid. It is more expensive than the purchase of assets.Disadvantages Some companies use leasing as a means of avoiding budget constraints, regardless of whether capital is limited. A lease requires an interest rate to be paid. It is more expensive than the purchase of assets.
Supports granted by the Ministry of Economy The Ministry of Economy has signed agreements with financial institutions and organisms, through which micro, small and medium-sized companies that demonstrate operational and financial viability, can request the support of a Financial Extension Officer, which is a natural or legal person, independent and specialized, previously accredited by a recognized institution, which supports, guides and advises micro, small and medium-sized companies in the diagnosis, management and monitoring of financing. a) Working capital, b) Acquisition of fixed assets, used in: c) Both Destinations:
Microcredit The objective of microfinance is to enhance clients' ability to start a small business, or to implement self-employment. Elements that participate in microcredit and how it works Microfinance: It means granting the poorest families small loans (microcredit) to support them economically in productive activities (business-self-employment). Microfinance institutions: They are organizations and institutions that provide financial services (savings and credit) to the poorest. They offer financial services only to their clients, through small savings accounts, individual or group, and credits that are according to their needs and their economic situation.
FONART Credit: The National Fund for the Promotion of Crafts, Fonart, is a Public Trust of the federal government, which responds to the need to promote the human, social and economic development of artisans in Mexico. The objective of this organization is to support Mexican artisans who maintain traditional techniques and designs, and who live in conditions of poverty, to enhance their capacities, through financing and stimulating creativity through technical assistance, to develop new designs and promote effective business strategies that allow the proper sale of your products. Within its support program for artisans is: The acquisition of handicrafts: it is an important way to increase the income of producers,since it allows them to continue with the next production cycle and thereby secure their source of self-employment. The contests: which allow to stimulate, through the granting of cash prizes, the creativity of the country's artisans. Training and technical advice to artisans: focused on improving the quality and design of artisanal production, to adapt it to the needs and requirements of the consumer.
SME Credit: It is another financing option by which you can obtain working capital or acquire fixed assets for your company. Among the benefits provided by this alternative are: It is a simple way to obtain resources for your company. It can also be used to obtain working capital or acquire fixed assets. It grants preferential conditions in requirements, rates and guarantees. No mortgage guarantee is needed, just enough the acceptance and signature of a joint and several obligor as an alternative source of payment, and who will preferably be the main shareholder of the requesting company or business.
Financing FONDESO The Fund for Social Development of Mexico City (FONDESO), has created a Financing Program for Micro and Small Enterprises. In this program credits are granted for up to 100,000 pesos per project, with possibilities of receiving credits of up to 300,000 pesos, subject to restrictions. Types of Refactional Credit: Purchase of machinery and equipment, work tools, transportation, adaptation or improvement of facilities. Habilitation: Purchase of merchandise, raw materials, leasing, payroll, other inputs and direct operating expenses essential for the company's credit purposes. Installment Payment Terms: Up to 36 months. Habilitation: Up to 24 months.
conclusion
We can conclude by pointing out the importance of both the Short and Long Term financing that the different organizations use on a daily basis, giving the possibility to said institutions to maintain a stable and efficient economy and continuity of their commercial activities and consequently grant a greater contribution to the economic sector to which they participate.
