funding | Capital Office

What is funding?

Entrepreneurs need resources to transform their corporate projects into tangible and profitable businesses. Small and Medium Enterprises (SMEs) require capital to evolve, by getting a foothold in the market and to eventually expand.

These resources typically allude to what we know as financing. Experts in business administration define it as the mechanism that allows entrepreneurs and companies to acquire the assets they need to launch their production processes. Furthermore, this helps meet the expenses related to them and, in general, aids with the overall development of their initiatives.

Funding has no specific origin but comes from various sources, all willing to offer financial solutions to business leaders and their companies, but not without getting some revenue.

As a result, the options available to an emerging entrepreneur are diverse:

1. External Financing.

– Bank credit specialising in the SME sector.
– The short-term credit granted by suppliers.
– The deferred payment to suppliers.
– The capital injection by an investor.

2. Domestic Financing.

– The capital of the entrepreneur themselves.
– Contributions of the partners (if the company has them).
– The proceeds from the productive activity of the company.
– The sale of idle assets (those that are no longer used).

All these alternatives (except as regards to the entrepreneurial resources), represent certain costs for companies.
Funding associated with bank loans must be repaid with interest included. Credit agreed with suppliers will have to be settled by the deadline, otherwise the risk of losing their services or supplies will apply.

Similarly, the investor benefits after injecting money into the project. The partners want to get better dividends than to bet their capital in less risky financial instruments. Therefore, although the sale of idle fixed assets represents certain income from capital, this will be lower than what would be achieved from the sale of assets in terms of use.

As a result, potential funding partners have to assess your financial situation, consider all alternatives available to promote their projects and define what the costs of each are to make the best decision.

They will take into account financial conditions, interest rates, payment terms, fines and penalties for non-payment, and benefits payable by creditors, among others.