Ways of finance Essay Example

longer period. Bank loans are commonly used for purposes like buying a new car or settling bills; however, you have the freedom to use the loan capital for any purpose.

Leasing (short term)

Leasing involves obtaining possession of a property for a specific duration before returning it to its owner or potentially renewing the lease agreement. The main disadvantage is that you do not own the property and only have limited time to use it.

The benefits of leasing construction equipment or any temporary product include the avoidance of potential issues.

Short-term Trade Credit

Trade credit enables business customers to obtain a product or asset and delay payment until a later date, usually within 28 days.

Both trade credit and short-term credit cards offer the advantage of deferred payment, enabling businesses and consumers to make purchases without immediate payment. Nonetheless, using a credit card can lead to higher interest rates and larger repayment amounts, possibly resulting in accumulated debt. However, if the entire owed amount is paid off, no interest will be imposed. Additionally, utilizing a credit card allows for convenient acquisition of products without requiring immediate payment or physical cash.

Example of credit card companies such as American express and egg card are just a couple of instances of these types of credit card companies.

Inventory loan

Inventory loan financing, also known as "Flooring," involves using the value of the financed equipment or stock as collateral for the loan. Lenders aim to ensure the security of their loans, so this method significantly increases the likelihood of obtaining financing.

Letter of credit

A letter of credit is a binding document that a buyer can request from their bank to guarantee that payment for goods will

be transferred to the seller. Essentially, it provides reassurance to the seller regarding payment for the goods.

To initiate payment, the seller must submit shipping documents to the bank to confirm goods delivery within a specified timeframe. This practice is commonly employed in international trade to mitigate risks associated with unfamiliarity with foreign countries, customs, and political instability.

Long term finances typically involve repaying a large sum of money over an extended period. In addition to returning the borrowed funds to the bank or lending institutions, interest payments are also required.

Taking on a new partner for the long term

This option allows individuals to invest in the business, thereby increasing its capital. However, disadvantages include a larger number of stakeholders and the need to share profits with other investors. Moreover, any changes to the business require seeking permission from these partners.

Having more money in the company and being less reliable has its benefits.

The long-term advantages of share issues and government grants

Share issues allow multiple individuals to invest in the company, bringing in extra funds. Shareholders collectively own the business and contribute a specific amount (e.g., ?1.59 per share) for ownership of shares. There are two types of shareholders: public limited, where anyone can purchase shares through the stock exchange, and private limited, where investment opportunities are controlled by the company.

Government grants provide financial assistance to startup businesses. These grants primarily target new entrepreneurs entering the business world rather than established companies.

The government closely monitors the disadvantages of starting this company for the first couple of years, but one advantage is that no capital is required.

Mortgage

A mortgage is a specialized loan intended for purchasing a house. The

funds obtained through a mortgage can only be used for buying a house and are subject to interest.

You can choose to repay this loan over an extensive period, which could be anywhere from 5 to 25 years or possibly even more. This provides the advantage of having a longer timeframe for repayment, depending on the household income and current interest rates. In terms of ownership, there are different types, each with specific objectives. For example, a sole trader's main objective is to stay in business and thrive. The nature of ownership often differs based on the number of owners involved.

Solo ownership refers to being the sole owner of a business, while partnership involves two to twenty partners. Here are some examples of ownership:

Solo Trader

A solo trader is an individual who owns a business alone. This can be problematic as it entails full liability and profits. The following are the available options for finance for solo trader ownership.

This is one option for your business, but I will go through the others.

Public limited

Public limited means that you will not own the business entirely. You can sell shares to anyone, which brings money into the business, but you would not have complete control. Also, if the company fails, you would not have any liabilities. The following types of finance are available to this type of ownership.

Private limited:

This is similar to public limited, but you have control over who can join your business. Typically, family members or friends are involved in this type of ownership. It is another way to bring money into the business. You can use the following types of finances.

Partners:

Partners refers to a group of 2

to 20 people who jointly own the business.

Choosing this option will bring more money into the business, making it a good decision. However, there are drawbacks associated with this ownership type. In the event of any problems, both you and the other parties involved will be held liable for the business. Additionally, any changes to the business will require consultation with the other person. Various types of finance are available for this ownership model. Considering that a DVD shop is in question, I recommend opting for solo trader ownership due to its ease of establishment and subsequent obtainment of finance once the business is established.

Fixtures and fittings

A record detailing fixtures and fittings required for the store is necessary.

When the store first opens, there are certain items that need to be paid for upfront. These items include display units and similar objects. The initial payment for these items only needs to be made once, unless they get damaged. If they break, you will have to pay for them again, but this usually happens 5 to 10 years later. Additionally, there are other concepts/items that also require a single payment such as security systems, lights, shelves, cash registers, signs (both inside and outside), and carpets.

These examples demonstrate some of the expenses that exclusively necessitate a one-time payment.