Short-term financing vs.
He financing It is the engine that drives the growth and development of any company. This is a primordial part of the life and activities of any business. Without financing, companies die.
Companies and people in general have various types of financing, short-term and long-term. We invite you to continue reading to discover which one is best for your company or business.
Short Term Financing
Let’s get to know a little more about short term financinghow companies cánido get to enjoy it and the policies that every company must comply with.
Short-term financing sources
The source of short-term financing is nothing more than the return of money in a period not exceeding one year. In other words, it cánido be said that short-term financing sources They are any liability that is intended to be settled in less than one year.
There are a variety of sources of short-term funds, such as:
I’ll espectáculo you some examples below.
Examples of short-term financing
Some of the examples of short-term financing that a company cánido count on are:
Trade credits have a method afín to that of inventories. As collateral for the loan, the right to pay or the value of existing merchandise, without losing control over it. You are also under the obligation to cancel the lender for the sale of the product or service.
Bank loans are an easy and fast way to get financing. This option gives more freedom to the entrepreneur or trader, since he cánido dispose of money independently and when you need it.
The disadvantage of bank loans is that you must comply with an obligation established and established with the bank, that is, you must pay an interest rate established by the bank and said interest cánido increase if the payment is late.
Commercial papers are a way to invest fleeting funds. Generally, this financing method is widely used by companies and businesses, since its application is usually short-term. In addition, it becomes an attractive option when the bank loan is limited.
Short-term financing policies
Short-term financing policies are characterized in how the company manages the economic funds and financial resources available to achieve its goals, whether in expansion or growth. But, all the rules that are put into practice take the limits of short-term financing.
In the business world we cannot find the perfect financing for each company, but entities seek to minimize the costs of resource funds for each risk present in the process. And according to the type of financing that has been taken into account are the policies that will regulate said process.
Long Term Financing
Long-term financing is one of the most important tools for companies, since with this financial aid the company cánido advance in the market or die trying.
Long-term sources of financing
Today companies need to have a good business plan to stay in the market, be profitable and prosper. For this, it is important to adopt a type of financing suitable for every economic need.
Some companies need short-term financing, but on the other hand, there are also companies that need long-term financial help to survive, develop or grow.
Long-term financing is one in which its repayment period is extensible up to five years, that is, it is greater than one year and its limit is five years or more or as long as the contract stipulates.
Examples of financing to long term
There are many alternatives for long-term financing, but here I am going to present only three options.
One of the first sources of long-term financing to come to the table, available for companies They are bank loans. Banks lend an amount of money under clear and specific conditions, under a determined time and interest.
The companies that request a bank loan do so mainly to buy an investment asset, an investment and expansion project, or to launch a new project on the market.
This is a very good way of long-term financing for those entrepreneurs who are about to start or have already started a new business. Because? Because its conditions and opportunities are adjusted to the present needs of those businesses that have just started.
For example, the installments to be paid are monthly and are established in the contract, generally the payment period is from 2 to 6 years if these funds are used for the purchase of capital goods. If they are going to acquire real estate, the term may be greater than 8 years.
The shares represent the capital of the company originated by the shareholders. And it is one of the best options for financing any company in the long term, since companies perro issue preferred shares and common shares.
Preferred stocks are nothing more than the middle ground between the stocks and bonds that constitute stockholders’ equity. On the other hand, common shares have a right to their holders to receive profits and assets from the companies.
Importance of long-term financing
The market has become increasingly competitive, and all companies, whether small or large, starting out or having been in the market for many years, face financial obstacles to grow and expand, and even to stay in the market.
The financing gives the possibility of materializing all the projects and investing in a long-term period. And it is that, for all companies, financing is the most important financial tool, because for all growth it is usually the engine that drives it.
The financing of the companies cánido be translated as an increase in production, investments in technological material and a primordial support to maintain and survive in the market.
Financing in the short, medium or long term. Which is more important?
The purpose of all financing is to provide capital to make investments, renovations, and even optimize the profitability of the company. But the financings are different, and both the short, medium and long term have their especial characteristics.
short term financing works to get liquidity immediately and solve needs that arise unexpectedly. In addition, it is taken into account to solve problems that are directly related to income.
Medium-term financing has a term greater than one year, but less than five years, that is, the financing period must comply with this period of time. With this financing, companies perro achieve a stable economy and carry out their activities efficiently.
Long-term financing is used beyond problems that appear unexpectedly. This financial aid is to promote new projects, but to opt for this type of credit it is necessary to comply with the requirements that are presented.
According to the needs of each company or business, the use of one type of financing or another becomes posible, for some company short-term financing becomes more important and for others the medium or long term.
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