Quiz 7: How to Obtain the Right Financing for Your Business
Business venture means when the entity gets developed with the profits. It can be considered as a small business. The large number of business ventures may do investment in more than one groups which have a business expectation in order to bring the financial profits. The requirement of capital is important to finance the venture. The business assets must get financed with the debt funds and equity. It have a maturity which is equal to the productive asset life. It is not practical to finance the business fully with debt funding. The small scale business manage the working capital in order to even out the variations of cash flow. When the person is financing a business venture, they should pay careful attention to the requirements of capital. The fixed assets of firms may get financed with equity funds or debt funds which have maturity period off approximately equal to the productive life cycle of the asset. The business should not get financed fully with debt financing.
The requirement of capital helps the owner to regulate the business. It is known as regulatory capital and capital adequacy. It is that capital amount of bank which should be required by the financial regulator. The managers of small business can use the needs of project working capital which is known as cash budget. The managers should make the budget to do regulate the business expenses. This budget helps to make an estimate of what will be the out-of-pocket expenses takes place in a coming year. It helps to produce a product for sale. The revenues may get changed from one period to another period and the producing cost is constant in nature.
Equity financing means the process which is used by the company to raise the capital, they can do so by selling the stock of the company to investors whereas debt financing means when the company raise the money for the working capital by selling the bonds to any individual. The small business owners use the equity financing because it serve the creditors which can save them from the financial loss. When the company face any financial loss the equity financing can save them. The owners of small business can use the debt financing for a particular specific time period. This financing come from the lenders which can be repaid to the lenders at a particulat rate of interest.