Explain the following methods of financing a business:
b. leasing assets,
c. using credit cards.
Business financing refers to the methods used by companies and other organizations to raise money to start a new business or support the operations of an existing business. Business financing is essential for the growth of a company.
Answer and Explanation:
Factoring. It's a financing method where a company with financial constraints sells its account receivables to a third party at a discount to help them have working capital. When the company sends an invoice to the customer, the third party (factoring company) pays 70-85% of the invoice value immediately. The remaining percentage is paid after the customer pays the invoice. However, the factoring company will cut its discount.
Leasing assets is an agreement between a property owner and an individual or company, where the owner allows the other party to use a property or equipment at a fee for a given period. A company may lease part of its properties or equipment to raise capital.
Credit cards. Many banks are not willing to extend their loans to small businesses and startups. This has forced them to turn to the credit card in financing their operations due to their easy accessibility. However, the credit card is a costly form of financing due to their high-interest rates.
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from Corporate Finance: Help & ReviewChapter 8 / Lesson 7