What is Finance and what are its sources

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2018-06-01 07:00:26

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What is the financing and what are its sources, with subsequent distribution?

General information

what is the funding and what are its sourcesWhen an entrepreneur starts his own business, he needs to know: over time, he will again need money. Sooner or later-doesn't matter. The fact is that will need money. Therefore, it is important to know what financing and what are its sources. The so-called replenishment of funds. Conventionally, there are two sources of funding: external and internal. Each of them has its own characteristics.

Internal funding sources

What applies to them? Net profit of the plant, enterprise, factory and depreciation – those of the internal sources from which to take the potential for new development. They are most common for small businesses. The main sources of funding – they received money. The fact that someone outside of it is rarely ready to invest in a small company. But if it is developing successfully and has a high level of profitability (which is pretty typical), there may be exceptions. The expansion of production run and at the expense of their funds, but in such cases the process is very slow. For this we have to repeatedly undergo the cycle of creation and implementation of the product. The important point is the use of depreciation. Large companies use not only usual, but also fast. This is possible through the use of equipment with high productivity that does not lead to higher prices. That's what funding and what are its sources. The basis of any activity is the determining factor. But suppose that the company wants to go the path of accelerated development.

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External funding sources

the main sources of funding

If necessary, or plans to expand production at an accelerated pace, the company may use the funds granted by other entities. There are several options for development. The most popular are opening a line of credit from a Bank or find an investor. Each of these ways has pros and cons. Thus, the use of banking services usually implies substantial expenditure in the form of interest payments and the loan. To the same % of the loan often exceeds the level of profitability, which creates additional problems. If we turn to the investor, you can obtain a loan on more favorable terms, but instead requires, as a rule, to give a share in the business. And despite the benefit, the Bank can still repay the money, and then all the profits will accrue to the owner. But in the case of the investor only option – to buy part of it. That's what funding and what are its sources of external type.

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