Business Activity: A Conceptual look into Debt Financing & Loan Sourcing by @swaylee

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Greetings Everyone,
As one of my best communities, I noticed a sharp decline in active members and I'm here to do my part in keeping it up by posting actively with quality. Today we will be looking at a section of business financing specifically an aspect of debt financing. This post is aimed at educating business men and women on the various sources of loans be it long term or short term loans. Let's get started.

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Business Financing

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Ever heard of the term "You use money to make more money" well I would say it speaks for itself when it comes to this post. As someone in a business venture or who would like to start a new business venture there has to be capital both liquid and fixed capital. You can't start a business on fumes, there is need for money in almost every aspect of the business such as employment of staffs, buying of stock, renting of office/ buying an office (if possible) and many other miscellaneous expenses that might occur along the way. Hence business finance came into place.

Business Financing is simply the funding of a business. It involves how a business acquires funds to ensure smooth running of the business. When you are putting money into a business, you are financing it. Now there are various types of business financing but the main ones are Equity financing and debt financing. This post is centered on loans so we would be looking at debt financing specifically.

Debt financing is a type of business financing where the business raises money by selling debt instruments or equity to the public or by collecting loans either in fixed or liquid assets to be paid back with interest at a later date. These loans can be collected from anyone including non governmental organizations, banks (not necessarily commercial banks) and even friends and family. Loans that can be taken vary in interest rate and in period of time before repayment which can be called Loan Terms.

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Classifications of Loan Terms

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✓ Short/ medium Term Loans

Ranging from a few days to a maximum of 5 years, short term loans are money borrowed to meet up with quick and smaller scale transactions. They are often used for personal issues. Let's say I borrow 500 steem from @cindycam to pay her back with an added interest of 45 steem in 5 months, it is a short term loan as it doesn't exceed 5 years. A bank overdraft is another good example of a short term loan. In most cases medium term loans stand on their own but since there is much difference, I decided to put the two together.

✓ Long Term Loans

Long term loans involve borrowing larger amounts from institutions or people with lower interest rates and over longer periods of time. The time for repayment here ranges from 5 years to a maximum of 30years. Due to the length of the payback period, the borrower needs to submit a collateral to the person or institution lending the asset and the payment for the long term loan is usually paid in installments. For example you take a car loan to acquire a vehicle, and the agreement was to payback after 8 years. You pay in installments for the space of 8 years where you must have finished paying by that time.

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Sources Of Short/ Medium Term Loans

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Commercial banks offer medium and short term loans to the public. You would need guarantors who would vouch for you that you would pay back the loan. Due to past experiences, they always ask for collateral which they would utilize in the event when you cannot pay back. They also offer short term loans like bank overdrafts.

Loan Applications some institutions utilize online websites and applications to give out short term loans to worthy users without collateral just with alot of crucial and vital information about the user. Although not paying back the loans to the app comes with it's repercussions.

Family and Friends can also help in the provision of short and medium term loans. Taking loans from the bank becomes really tedious and people run out of options so they usually turn to their rich friends who have some extra money to lend and depending on the relationship, you can take loans without having to pay interest.

Trade Unions, Governmental and Non-governmental Organizations help with offering short term loans to worthy members who come seeking for them. Some governmental and non governmental organizations were made solely with the aim with giving short term loans to the public for example the bank of Agriculture which extends short term loans to farmers who come to them in need.

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Sources Of Long Term Loans

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Most Banking Institutions like the Mortgage banks (for buildings and homes), Agricultural banks (for farmers and farm equipment), development banks and even commercial banks offer long term loans to users and potential borrowers with a certain condition for loan application and payment.

Friends and Family can also offer long term loans so they shouldn't be left out. As I said earlier, long term loans have a period span of 5- 30 years so as far as the loan repayment period extends that long, then it becomes a long term loan.

Government Institutions also offer long term loans to those in need of one. There are programs and institutions set up by the government of many countries to aid business men and women in pursuing their dream business so you can apply to one of them if you check in all the criteria and get loans from them.

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Conclusion

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I hope we have been able to learn a thing or two from the subject matter of today's lesson. In my next post I would be taking a deeper look into equity financing so stay tuned and thanks for reading.

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Post Name:	Business Activity: A Conceptual look into Debt Financing and Loan Sourcing by @swaylee
Owner's name :	@swaylee
Business Address	Barnawa, Kaduna, Nigeria
About us	Link

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