Question

Explain methods used in financing its business and why it is used instead of others?

Answer 1

Answer: Methods of financing the business- Are as following:

Bank Loan- Individual or company can take loan from bank, bank lends loan to people who need it and charges interest over it. Bank is one of the safest institutions. This is one of the easiest, simplest and quick way of financing.

Raising money from family and friends- An individual who is a sole trader, can raise money from family members and friends. This is the easy way and it takes less time.

Credit card- Company or individual can pay business expenses through credit card. Credit card can be used for personal and official purpose. Credit card holder has to pay high interest over it if he fails to pay the bill of credit card within the time limit, he has to pay late payment charges.

Issuing shares- Big corporation issue the shares to the general public through Initial public offering (IPO), they raises the funds in large amount, public invests into company's shares and in return, they get the holding of shares, ownership and voting rights in the company.

Issuing bonds- Corporation also issue the bonds, bond is a debt security that represents loan. People who invest into company's bonds are called Bondholders. Bondholders get interest over it.

Crowdfunding- It is an online platform where large number of people give small small amount to finance a project or business. Crowdfunding is famous nowadays.