Uses of Funds

• Methods of Financing

  1. debt financing
  2. equity financing
• debt financing. ●involves borrowing from lenders ●typically less expensive than equity financing
• equity financing - ●involves selling of ownership to various investors

  ●does not require repayment
• Working Capital - the difference between operating expenses and available funds
• Uses of Funds

  1. Short term
  2. long term
• Short-term funds - money that has been borrowed and will have to be repaid in a year or up to 3-5 years
• Uses of Short-term funds

  1. seasonal fluctuations in income
  2. unexpected expenses
  3. expansion plans
  4. mergers and acquisitions
  5. working capital needs
• Bank Overdrafts

  ●a form of credit extended by a bank

  ●allows an account holder to continuously withdraw money even though the account already reaches zero
• Business Credit Cards - used for small purchases and then repaid over time
• Loans from family and friends - ●come with no or low interest rates

  ●the amount can be limited
• Peer-to-peer lending - allows businesses to borrow money from individuals and other businesses
• Invoice Finance - allows borrowing of money against outstanding invoices
• Asset-Based Lending - allows businesses to borrow money against assets
• Government Schemes - provide businesses with access to funding
• Long-Term Funds

  ●acquired funds that need to be repaid in 5 to 25 years

  ●pools of money invested in stocks, bonds, and other securities
• Uses of Long-Term Funds

  1. investing in physical assets
  2. financing the construction of new facilities or the expansion of existing ones
  3. repaying short-term debt that is coming due
  4. providing working capital to support the day-to-day operations of the business
  5. acquiring another company or investing in a joint venture
• Long-term debt financing - taking out loans from banks or other financial institutions
• Equity Financing - involves selling shares in the company to investors
• Venture Capital

  ●type of equity financing

  ●gives additional resources such as mentorship and advice
• Asset-based lending - the company uses its assets, such as inventory or real estate, as collateral for a loan
• Leasing - the company leases equipment or property from another party
• Factoring - the company sells its invoices to another party at a discount
• Government Grants

  ●do not have to be repaid

  ●the company may have to meet certain requirements
• Initial Public Offering (IPO)

  ●the company sells shares to the public

  ●it can provide the company with a large amount of capital
• Debt Restructuring - process where the company renegotiates the terms of its debt with creditors
• Debt and equity financing are two of the most common types of funding methods for businesses. Depending on the specific needs and context, a business may need short-term or long-term funds.