Who offers outside financing
Equity and debt financing for companies
Factoring, credit financing, bank loans: the different types of debt financing
Among the examples of external financing, a distinction is made between short-term, long-term and substitutional types of financing.
As an entrepreneur, if you are faced with a spontaneous financial need or a temporary financial shortage, you will be particularly interested in short-term loans with a term of up to two years. Customer down payments, supplier credits, but also short-term bank credits can temporarily increase a company's debt capital ratio without incurring horrific capital costs.
A current account loan is a loan with a limited amount that the bank makes available to the borrower in a corresponding checking account. This type of loan is characterized by the fact that it can be called up spontaneously and the loaned money can be repaid immediately.
The Lombard loan can also be applied for quickly and is usually guaranteed without a credit check. The pledging of securities, bills of exchange or movable pledged objects is sufficient as security for a short to medium-term bond.
The guarantee credit is based on trust and surety rather than pledging and is generally associated with lower borrowing costs than other types of short-term loan financing. The
External financing through a guarantee credit is an option for companies with a good credit rating.
Long-term loan financing (between 2 and 10 years term) is usually used when companies make major investments or purchases. If the liquidity of financial resources is to be maintained, the costs for office buildings or expensive machines can often only be repaid with outside capital.
In addition to the classic bank loan, bonds are a popular form of credit financing for companies. Lenders for promissory note loans are usually so-called capital collection centers, which only grant large companies with excellent credit ratings a corresponding loan. In comparison with short-term loan financing options, promissory notes and comparable bonds are often associated with at least 0.25 - 0.5 percent higher interest rates.
Last but not least, credit substitutes such as leasing, factoring and franchising prove to be effective means of increasing liquidity in many cases. This type of debt financing is often used by supermarkets, department stores or restaurants.
Factoring is the sale of open receivables to third parties. The company assigns both the default risk and the likely profits from a sale to the new creditor. The sale of accounts receivable takes effect immediately and can be invested immediately in the amount of the expected sales.
Other examples of credit substitutes are leasing - the rental or leasing of company buildings or vehicles - and franchising, the indirect sale of a business idea for a fee.
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