Financing

Saving Money

Money is a depository of value because we measure the worth of all merchandise in terms of their money equivalent. If merchandise A is worth 1 dollar, merchandise B is worth 2 dollars and merchandise C is worth 4 dollars, then A is worth 1/2 of B and 1/4 of C; B is 2 times A and 1/2 of C; C is 4 times A and 2 times B. We have illustrated how money serves as the holder of value which could exchange for an equivalent value of any merchandise.

With that in mind, we now could imagine why a person who has much money could acquire plenty of merchandise and a person without money could not acquire any merchandise at all. Going further, we now know why a person who keeps more than he spends gets rich.

A person who deliberately prevents the money he owns from being exchanged for any merchandise is doing the act of saving money; but when that person deliberately seeks to acquire as much money in circulation in order to control the volume of merchandise exchange, the person is doing the act of hoarding.

We learned in elementary economics that “saving is the act of postponing consumption”; we literally postpone eating a banana for tomorrow if we have eaten enough. We do not eat the banana not because we intend to hoard it, but we simply plan to eat the banana at the proper time.

Since money could represent a piece of banana, we could say that we had saved the money equivalent of one banana by reserving it for another day. Now we can say that putting our cash in the bank is not the only way to save money.

We save money by reducing expenditure on leisure like buying the less expensive version of a merchandise that serves the purpose of a more expensive popular version. We can save money by recycling used merchandise. The act of saving money differs from “capital build-up or capital accumulation”.

If you are wondering can you get a business loan with bad credit? Then you will want to read this blog to the fullest.

Standard Loans

In Finance, Lending is the “act of providing money temporarily on condition that the borrowed money or its equivalent will be returned, usually with interest fee”. Lending operations is the main source of income of banks. The types of loans that banks offer vary according to each bank’s charter.

The ”Standard loans” in a “Rural Bank” are loans that respond to the needs of a “rural community”. The “Standard Loans” for a “Commercial Bank” are mainly designed for clients in the “commercial sector”. The “Standard Loans” in a “Universal Bank” include, but are not limited to, commercial loans, industrial Loans and all other types of loans that a particular universal bank’s charter allows; a universal bank differs from non-universal bank in that it is allowed by law to perform other financial services that specialized banks are not allowed to do (e.g. underwriting, asset management, trust services and investment banking services.).

But “Standard Loans” for whatever kind of bank has common denominators: purpose, term, security. All loans are granted for a specific purpose. All loans have term limits. All loans require collaterals.

Borrowers obtain loans to finance certain income-producing purposes; some common loan purposes: Commercial, Industrial, Agricultural, Housing. The term limits among banks do not greatly vary: Bank loan’s term ranges: Short (30 days-1 year), Medium (Over 1 year to below 3 years) and Long (3 years-above). Some loans are secured by real estate, chattel, Cash-in-Bank or Character; a loan granted with the borrower’s character as security is also called “clean or unsecured loan”. Unsecured loans are usually backed by guarantors. Banks selectively grant unsecured loans to their most valued clients.

The main factor that Standard Loans have in common is the relative uniformity in interest rates. Interest rates are regulated by the Central bank in a country, but it is dependent on the stature of the country’s economy. In special cases, some Central Banks Development Banks can offer lower interest rates to its specific types of borrowers.

Business Investment

Business is “an activity someone is engaged in”; investment is a certain amount of time, or energy or material resources a person uses up on a business. A person may use up time, effort and money to help victims of a calamity; the act of investing resources in the business of helping calamity victims ends when the target victims had received programmed assistance or when invested resources are exhausted.

Expending time, effort and resources in an activity that is meant to gain profit is another kind of business investment. In a profit-oriented business, the investments are not meant to be consumed but to be expanded; investments are goods that are exchanged for other goods. There are basically two kinds of goods you can invest in- goods that you need to consume to satisfy a certain need (e.g., food, clothing, medicine) or goods to produce other goods or tools (e.g.,fish net,ax, plow,steel mill).

In a profit-oriented business, you buy consumption goods and sell them at a higher price to receive a return on your investment The more times you can replicate the cycle of buying and selling at a higher price, the more return on investment you will accumulate.

Another way of expanding investment is by purchasing goods that produce other goods. You buy a fish net to catch fish and sell the fish you catch; the more fish you catch and sell, the more will be the return in your investment. The faster you can repeat the catch and sell cycle, the faster you are able to accumulate return on your investment.

Therefore, the faster is the turn-over of your investment, the faster you will accumulate resources that can be reinvested called capital. Capital accumulation is the goal of investing in a profit-oriented business. Put all together the profit-oriented businesses in a community and you will have a capitalist economic system in that community. Put a government system and citizens in that community and you will have a social system with a capitalist economy.

Business Loans

The credit rating of a person or a company is a sound indicator of the stature of that person or company. A person or a company that had established a high credit rating receive invitations to avail of loans from lending companies instead of them seeking financial assistance. Borrowers with acceptable credit ratings could easily obtain new loans.

Among lending institutions, banks have the most reliable credit departments. Banks employ well-trained specialist to carry out the various lending procedures; a Credit Committee- consisting of senior officials- decides what to do with loan proposals. The Committee may require additional requirements or approve/disapprove the loan proposal.

Established banks send credit investigators to obtain relevant data from other banks, companies or person with whom the borrower had or likely had dealings. Court or police records are reviewed if necessary.

A Bank Appraiser will estimate the current market value of the properties offered as collateral by the borrower and determine if these are encumbered. The Appraiser also determines the value and encumbrances of other known properties of the borrower.

After the Credit Investigation and Appraisal reports are completed, a Project Analyst will study the reports to determine the borrower’s rating on: Character, Collateral and Credit Experience. He will prepare a projected financial performance with the infusion of the requested loan proceeds. If the study finds a good chance the business could generate sufficient income to repay the loan, the borrower’s character and credit handling are acceptable and the collateral’s value is sufficient to cover the loan in case of foreclosure, the Project Analyst will recommend the approval of the proposed loan.

The Credit Committee- consisting of The Loans Division Chief, the Accountant and the Manager-will approve or disapproved the loan proposal. If the loan proposal is approved, the properties submitted as securities for the loan will be registered as encumbered and the loan proceeds will be released after the completion of the loan agreement.

Financing

The term “Financing” pertains to the action of providing or obtaining money to pay for desired purposes. The provider is called a “financier” while the recipient can be a beneficiary or borrower. We will focus on the financier-borrower relationship.

Financiers provide money to borrowers in consideration for receiving interest income; financiers require borrowers to pay service fees and to maintain a certain level of daily balance in saving or savings-checking accounts in the bank. Borrowers obtain money from financiers usually: to augment starting capital, or to expand operations of a growing product line, or to replenish operating capital tied up to uncollected receivables.

The proponents of new income-producing activities are expected to be able to pay for the preparatory financial requirements of the activities. Financiers- banks, quasi-lending institutions, loan sharks- provide loans to start-ups. Due to perceived high degree of uncertainty in the capacity of start-ups to repay loans, financiers usually increase interest rates by charging higher service and incidental fees, require higher daily balance requirements on savings account and ask for more securities. Borrowers who fail to satisfy bank requirements usually become victims of loan sharks.

Borrowers who obtain loans to expand existing product lines are subjected to lesser loan requirements because they are perceived as more likely able to repay loans. Borrowers who urgently need to replace operating funds tied up in uncollected receivables are also treated leniently by banks because these are often medium to large scale business establishments with relatively sound track records.

Regardless of the size of a business establishment, its stability is measured by its capability to remain as a regular and earning player in the market and it has fixed and cash assets to guarantee that it can continue to exist. Finance management is one key in maintaining business stability. One good finance management practice is making sure that a company maintains a stand-by credit line that it can avail from on short notice; this guarantees that transactions requiring cash would always be supported. This is called liquidity.

Certain universal banks offer “call loans”; this financing scheme responds to the need of businesses that require short term loans on short notice. This scheme discourages the proliferation of large-scale loan sharking activities.