Sources of business financing. Sources of financing for small and medium businesses

Main sources of business financing Presentation of the questions of the section "Economics" of the Codifier in Social Science 2011 (preparation for the Unified State Exam) Compiled by: Oferkina, teacher of history and social studies, MOU "Lyceum 18", Novocheboksarsk, Chuvash Republic

Main sources of business financing Plan 1. Sources of business financing: a) internal; b) external. 2. Internal sources of financing: a) firm profit; b) depreciation. 3. External sources of financing: a) bank credit; b) transformation of an individual enterprise into a partnership; c) transformation of the partnership into a closed joint stock company; d) the use of funds from various funds to support small businesses.

Sources of business financing internal (firm profit + depreciation charges) external (bank loans + funds of various financial institutions [insurance and investment companies, pension funds, etc.] + state and regional funds to support small businesses

External sources of financing bank loan (short-term - for a period not exceeding 1 year; long-term) transformation of an enterprise into a partnership transformation of a partnership into a closed joint-stock company use of funds from various funds to support small businesses

All cheerful day who came across this post in the middle, or at the end of the working day! Today we will reveal such a minor, auxiliary topic as the main sources of business financing. It is simply necessary to delve into this topic if your goal is to understand how the economic system of society functions. Let me remind you that the study of this section is provided for by all specifications of the discipline "Social Science"

Sources of financing

Business is, in short, entrepreneurial activity, the purpose of which is to make a profit, that is, roughly speaking, making money. A business starts with the first deal when you sell something: a product or service, or something else (who knows what will be invented there in the future!).

Any business starts with start-up capital. It can be anything. For example, a friend of mine started a business with 10,000 rubles and from a cubicle that he rented. In it, he began to fix computers. This happens if you do not have rich relatives who can help with the start-up capital.

Thus, the first source of business financing is personal savings of citizens... This is the money that you put in socks, or in a box, or in a piggy bank.

Second source business financing are investments. An investor can invest in your company, firm, or personally in you, if he sees potential in your business. Of course, the investor is also taking wild risks. But that is why he is an investor to risk his money.

For example, everyone knows the history of Apple, so many films about Steve Jobs have been shot! Steve himself called investors to invest in his startup in the garage. In the end, the guys from Silicon Valley were lucky and they invested money in them, and they paid off.

As for Russia, there are many investors in Russia, but they are afraid to invest money, preferring foreign offshore companies and foreign companies.

The third such source serve bank loans. You can go to the bank, and if you have a good credit history and you defend your business plan well, then you can be given a substantial amount.

Another source is government grants. You are looking on the Internet for a government organization that distributes grants for entrepreneurial activities and forward. For example, in our Perm Territory, the Ministry of Agricultural Development has given, and seems to be giving grants to those who decided to start farming.

On this, in principle, the main sources of funding end and non-main ones begin.

Among them, for example, one can single out loans from individuals. For example, you know that your friend has money. You come to him and tell him to lend them to you. And he can give. Or maybe not. And if a person is not your friend, then he can hire bandits to get your debt out of you.

It is clear that this is all some kind of crap, but there are persistent rumors that they have returned. So nothing like that can be ruled out.

Also, the rental of property can be attributed to minor sources. Well, this is understandable if you already have a business and it has some kind of commercial property: company cars, or apartments, or retail space.

Something else important

There is a task in the Unified State Exam in Social Studies for the second part of the test, in which you need to draw up a plan on a similar topic. By the way, I will lay out this plan now, which I made with my own hand. I do not recommend writing it off directly, because if it is published here, it is no longer unique.

Plan for the second part:

I think you got an idea on this topic! Share the article on social networks, and also join our Vkontakte group.

Best regards, Andrey Puchkov

Topic: Main sources of business financing

1. Business financing source concept.
2. Internal sources

• Profit from the rental of company assets
• Financial savings
• Profit from the sale of company shares

3. External sources

• Bank loans
• Investment funds
• Public funding: e.g. through a grant system

4. Financing a business as a condition for the success of its functioning

5. Business planning as a condition for providing business with financing

Any business needs funding at the stage when it has just started and has not moved to self-sufficiency.

Young businessmen need support, and since the state is in no hurry to provide it, they have to look for alternative options, where everyone chooses to their liking.

External options

External sources include those that are not associated with the firm itself and allocate money from outside. They can be attracted by different things - from a share of profits to a percentage of debt - but the essence is always the same: you can always find someone who will finance the project.

There are two types of them:

• Debt... These are sources that provide money at interest and timely return. This method of financing is considered the best, since it implies that the relationship between the lender and the borrower will end as soon as the entire loan and interest on it are paid. However, there is a risk: if the firm is unable to repay the loan, this will affect its reputation and overall financial condition.
• Equity... These are sources that provide money for a share of future profits or for a share in a firm. The relationship with the lender will never end, because after the conclusion of the contract, he becomes the owner of a part of the borrower's organization.

Debt includes:

• Loan secured by property... In this case, the guarantor of the fact that the loan will be paid is the property of the loaned - most often real estate, as the most stable in price and in safety.
• Overdraft... A loan in which the amount of debt is paid not in installments, but in whole, within a specified period.
• Bonds... In this case, the company pays with IOUs, debt securities, which imply that the debt will be paid on time.
• Leasing... In this case, the organization receives for use some asset in advance, as if it were a lease, with the right of subsequent redemption. It is considered the most profitable way of lending, since it implies not just getting money, but a certain thing useful in work.

Equity includes:

• Raising equity capital... In this case, the company issues shares, which over time will begin to bring profit to shareholders. With the right advertising and a well-thought-out business plan, you can make good capital on them.
• Raising venture capital... Venture capital is like a game of Russian roulette - investors give young companies money if they find it interesting. In return, the investor receives a share in the company's income.

All external ways of obtaining funding are associated with risk. Non-payment of a loan, incorrect behavior of investors or their refusal to further investments - all this can undermine the fortune of a young company. Therefore, it is believed that the best solution is to try to survive on internal resources.

Internal options

Internal sources include those that do not require the involvement of outsiders and do not differ in such great risks. Among them:

• retained earnings... If the company already has its first profit, it can use it to satisfy its needs and provide the next profit that can be used to expand and improve the enterprise.
• Automatic financing... In this case, the passive credit debt of the company increases, as well as the distributed, but not yet paid wages. They are used to meet the needs of the enterprise, which significantly increases its risks - if the business does not pay off, there will be nothing to pay salaries and pay off the loan.
• Capital optimization... In this case, finance comes from the reorganization of the business. For example, a company buys more advanced machines that will run twice as fast in the future, or cuts gasoline costs, freeing up additional funds.
• Disposal of non-core assets... If the asset is not profitable, you can sell it and buy something that will bring it.

In general, the competent use of internal assets and start-up capital is the key to any successful business. But sometimes it is simply impossible to do without external financing - at the initial stages, for example, when the activity goes to zero and is not yet profitable.

You can learn more about all the options for raising funds from the following video:

What do you need to get investment?

Money doesn't come out of thin air. To get funding, you need to attract an investor, and to do this, you need a few things:

• A well-thought-out business plan that an investor can be interested in and, preferably, a person who can present it. It should indicate:
  • The idea and purpose for which the business is created.
  • Its description is what it will bring to people, how it will look to the consumer.
  • Investment proposal - what exactly is required from the investor and what he will receive if the business works out.
  • Team - who is going to work on the project and how professional these people are.
  • Product, market and production - how the product or service will be produced, how it will be sold and whether buyers are interested in it.
  • Assets - what does a firm have to do business? Intellectual property should also be mentioned at this point.
  • Business model - how everything will work, how the activities will be arranged from the inside.
  • Project economics - estimated financing, start-up capital, time when the first profit is expected according to the forecast.
  • Actions to be taken after receiving the investment - what will be bought, what will be improved and where it will lead.
• Pledge. If you cannot attract an investor solely for an idea - and this may well happen if it is not truly brilliant (and in this case, history knows examples when a genius never found funding), you will need something that can be offered the bank as collateral for the loan. Real estate or a car will do just fine.
• Credit history. To get a loan, you need to have no overdue debts.

In addition, you need patience in order to continue trying after the tenth refusal, and dedication, so that even after the hundredth "no" to continue to believe in your project and seek its implementation.

The heads and heads of the financial structures of the current domestic enterprises show a serious interest in the selection and search for ways and means to finance their business.

Banks and stock markets provide an opportunity to consider various proposals on this issue, explaining their features, correlating them with changes in the money market.

We invite you to consider the standard and most effective methods of obtaining capital for business development.

The source of finance for a businessman can be classified as external or internal.

The first category includes those assets, monetary units that the organization receives "from outside", from companies from which the business is not directly dependent, for example, a bank, depositors, investments. Which tool to use and direct is determined according to several main points:

• The cost
• Passive, exactly its type
• Necessity and term

Sources "from outside"

This type is subdivided into equity and debt. In the first case, the company uses its own funds, in the second, it takes a loan. Investors believe that the last financing instrument is more profitable, since the very cost of such an instrument already includes a small insurance amount, “at risk”. Business owners also see their benefits in this type of financing, in this situation there is no need to allocate for the lender in the organization.

The disadvantage of such a tool is that it makes the company dependent on situations in the economic market, in case of a downturn, for example, the organization may not be able to repay the loan.

Debt financing, types

• Syndicated loan

This form is used in the event that one bank is unable to issue the requested amount of funds. Then the creditors form an association, and certain contractual relations are drawn up both within the syndicate and with the recipient of the loan, which determine the algorithm of actions to repay the loan.

According to statistics, our banking organizations rarely use this method as a source of financing, more often Western companies use it.

An alternative to this method is bonds.

• Bonds

They are issued by large companies in order to attract additional funds. Such papers can be freely available, they can be easily purchased and sold. Sustainable businesses that are able to forecast the economic situation issue bonds denominated in foreign currencies.

• Overdraft

In fact, this is a short-term loan. Overdraft is subdivided into classic, advance, and collection. A significant difference from a loan is that it is repaid in full, at the expense of the funds debited from the card. Its plus is that you do not need any additional documents for its registration, except for your own bank plastic card with a limit on it. For this type of lending, it is sufficient that the movement of funds on the card is constant. The downside is high interest rates and a short loan repayment period.

• Leasing

Another form of lending, when the lessor leases some kind of property for a long time with the possibility of either returning or buying it back. Advantages of Leasing are that the profit of enterprises using leasing is subject to less tax. Leasing enables business owners to update their technical base. If, in a situation with a loan, you have an agreement that will prescribe clear terms, amounts of payments, then you can always agree with the lessor on terms that take into account your capabilities. Interest rates on leasing are usually higher by several percent on a loan, however, despite this, the total benefits from this type of lending are greater than from a classic loan.

• Credit based on a rating agency

In this case, the rating agency is the guarantor of the bank and indicates whether the issuer will be able to fulfill all its obligations. Based on their opinion, lenders and entrepreneurs decide which source of financing is the most profitable, where the demand is higher. With a positive assessment of the rating agency, the competitiveness of the enterprise increases.

• Secured loan

A secured loan must be secured by some valuable property that will ensure the issuing organization that you will surely repay the issued amount. The property is sold only if the borrower fails to meet its debt obligations. The disadvantages are that such a loan takes more time to process and is associated with the risk of losing the mortgaged property. Plus - the interest rate is much lower in comparison with a classic loan.

State lending

• Direct capital investments. These funds were directed to enterprises in the public sector. Accordingly, all profits are public.
• Subsidies. Allocation of small amounts, partial or partial funding. It covers both private and state-owned companies. The positive feature of this kind of financing is that it is interest-free, free and non-repayable.
• State order. The state acts as a buyer and generates an order for the production of a particular product for a specific company. Russian Railways can be cited as an example. The road is public, and what moves along it is created by private organizations. In this case, the state is not spent on production, and the manufacturer makes a profit from sales.

Equity financing, types

Raising funds through shares. Shares are issued by those organizations that have taken place in the market and have stable cash flows. Shares can be offered primarily, secondarily, in part or in full.

• Venture capital

Funds used for investment by an external investor through third parties in new, growing enterprises, or in those that are on the verge of ruin. This type of investment involves high risk, but also income, whose size is defined as "above average". Through venture investments, you can also acquire a share of the company in the property.

• Syndicated investments

The united group of investors (having the romantic name "business angels") on their own initiative invests in projects that they consider the most profitable. This method of receiving funds is also associated with the risk of lack of benefits (the business angel invests his own funds), but is practically free of bureaucratic delays.

Internal sources

Such funds are formed as a result of the work of the enterprise. This includes: sales revenue, gross profit. These include:

• Profit that is retained

These are the funds that remain with the organization after it has paid all taxes, carried out all cash transactions with shares. Such money is sent to the assets of the company and used for its further development and growth. Such funds can be assigned to the purchase of securities or simply stored in the feed of the cash balance.

• Automatic financing

Funds received as a result of an increase in the amount of the liability (an increase in loan debt), when calculating (but withholding) wages to employees. Such funds are automatically allocated to the needs of the organization. This type is associated with huge risks in the form of an increase in the company's financial liabilities.

• Factoring

It includes three parties: a factor (buyer of claims), a debtor (buyer of goods) and a creditor (supplier). In essence, this is speculation in short-term receivables, usually with a discount of 10 - 60 percent. A type of short-term loan secured by the assets of companies.

• Capital optimization

It implies the creation of certain projects aimed at increasing or decreasing profitability. In this case, as a rule, comprehensive measures are taken that allow free funds to appear that can be reinvested in other areas of the organization's work, aimed at expanding it or creating new projects.

• Resetting a non-core asset

Assets that do not bring monetary benefits, on the contrary, diverting money and attention to themselves. In this case, the best way out is to sell such assets, and the proceeds must be transferred to the direction that the company considers to be a priority.

• Depreciation fund

Depreciation - depreciation of production facilities, more precisely, its monetary value. The amount of money from which the fund is formed, aimed at these needs, is included in the cost of production, and accordingly affects the price. The main tools of the enterprise are repaired, replaced or rebuilt from these funds. The required amount of deduction is calculated from the original price of the funds for which the depreciation was calculated. If the equipment needs immediate repair or replacement, then the enterprise can go along the path of accelerated depreciation. In this case, deductions are made in a larger volume than the normative ones. This method is recommended only for large business, since when buying new equipment, volumes are increased, the quantity of goods produced increases and depreciation is calculated for a larger amount of products, and, therefore, prices do not rise.

In order to start your own business, you need facilities. Before getting profit, have to bear certain costs. That is why entrepreneurship is considered a risky business: you spent the money, but the profit ... maybe it will, maybe not.

The problem of finding sources of financing arises before the company both when it is required to expand production, and when “hard times” come, which somehow must be lived through.

Sources of business financing

All possible sources of capital replenishment can be divided into two large groups: internal and external.

The firm can invest in its own development a part of the profits. Unused equipment and vacant space can be sold or leased. Reduce the level of stocks of raw materials, components, for trade enterprises - goods. Sometimes, for these purposes, a depreciation fund is used, that is, those deductions that are made towards the future replacement of equipment.

Internal and external sources of funding

Domestic financing has several significant advantages. The firm does not have to bear no additional costs.

It is not necessary, for example, to give someone a part of the profit: bank interest on a loan or dividends to shareholders. Business owner (or owners) maintain full control over production and marketing products in their hands.

Minus one, but even more significant: internal sources are often simply not enough to renew fixed assets, to expand production, to implement a new business project.

Then you have to resort to external sources ... The first thing that comes to mind is credit... It is issued for a specified period on the basis of repayment, payment and warranty. Loans are offered by many banks. In most cases, the enterprise is completely free to decide how exactly these funds will be used. But you need to remember not only about the need for their timely return, even in the event of bankruptcy of the company, but also that the payment of debt and interest on it can seriously increase production costs. In addition, banks quite rarely go to the provision of long-term loans (more than three years), and some projects take longer to complete. In addition, in order to secure a loan, the company must often provide collateral, which can be equal to the amount borrowed.

Credit

A loan is not only bank, but also commercial ... Its partner companies provide each other in the form of an advance, prepayment or deferred payment. The terms of a commercial loan are more loyal, the interest on it is often lower. But it cannot be long term.

Additional funds can also be raised by including new people among the founders of the company. They will contribute their share by increasing the authorized capital. But you will have to share power with them. You can put into circulation stocks or bonds. If the company is reliable enough and has established itself well in the market, it is quite possible that there will be a sufficient number of people who want to become its shareholders. In which case, they will not have to return the value of the shares. But part of the profit will have to be sacrificed. And then, some important decisions will need to be made collegially - at a meeting of shareholders or a meeting of the council of a joint stock company. This can reduce the efficiency of company management. But corporatization is a very popular option in the world to attract additional investment. Most large companies are joint stock companies.

If we are talking about the need to update fixed capital, then you can also resort to leasing ... This term comes from the English verb to lease- to rent.

From a leasing company, you can purchase real estate or movable property in a long-term lease with or without the right of subsequent redemption. These can be tasks, structures, machines, machine tools, computers ... In principle, even a fully equipped enterprise. In this case, the problem of collateral will disappear. The property itself is it. More often than not, leasing companies do not require immediate payment. It can be carried out from the proceeds from the sale of products manufactured on this equipment. The company can also use additional services: maintenance of leased property, staff training, and the like. Lease payments are fully included in production costs.

Leasing

Large firms are in a better position when it comes to additional sources of funding. They usually have higher incomes of their own, and their creditworthiness inspires more confidence in banks. Small businesses have a harder time. In most of the developed countries of the world, small businesses can count on government support, funding from special budgetary and extra-budgetary funds.