• Vinayak Parab

Why Businesses need Financing?

Updated: Oct 9, 2020

Finance is the main fuel of every business, no matter what size. However, sometimes a business can face monetary constraints and a shortage of funds. In such a scenario, taking a loan can help power up the enterprise.

The influx of cash can be used for multiple purposes. It could range from enhancing working capital, expansion, purchasing new assets, replenishing a stock, hiring more staff, or refinancing to pay off an existing debt.

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1. Finance Expansions to Production Capacity:

The consequences of not having enough capital can be dire for businesses looking to grow and expand. Hence enterprises opt for external funding to incorporate new technology and purchase assets like innovative machinery to upgrade their facilities. This increases efficiency and production capacity which helps in fulfilling expansion plans.

2. To Develop and Market New Products:

Entrepreneurs are always looking for opportunities to spread out, flourish and take their business to the next level. Modernisation and diversification are excellent growth strategies. Capital funding can be used to develop, test and launch new products in the market.

3. To Enter New Markets:

With growth and expansion, it’s inevitable that businesses want to enter a niche market or target a new clientele base. The initiative to explore fresh avenues involves in-depth research, well-rounded marketing strategies, promotional campaigns, recruitment of skilled and talented staff, setting up of retails outlets among other things. And yes, all this requires a tidy sum of investment.

4. Take-Over or Acquisition:

As a part of its growth strategy, an enterprise may consider scooping another company or combining forces with a like-minded firm to form a new entity. While both mergers and acquisitions come with potential gains, the undertakings are expensive and involve a hefty investment.

5. To Pay for the Day-to-Day Running of Business:

To keep the ship afloat and ensure that all the operations are running smoothly, businesses need to have enough working capital. They may sometimes require a cash injection to tackle short-term obligations. These could include day-to-day expenses like paying vendors for raw materials, wages to employees, rent, clearing of invoices, overhead costs, regular supply of inventory and more.

6. Research and Development:

Research and development (R&D) involves incorporating new technologies, developing unique product and services or enhancing the existing ones.

This measure is used extensively by companies to explore new opportunities, penetrate fresh markets and attract skilled workforce to stay ahead of the curve. However, R&D programs are expensive and require large capital investment.

Many businesses, especially small establishments don’t have the resources to shoulder the expense. They approach lenders for financial assistance to leverage their R&D efforts successfully.

The bottom line is that most businesses experience a need for cash inflow at some point in their existence. Whatever be the reason, it’s important to weigh the funding options available very carefully. The peer-to-peer lending platform is a good choice to tide over a financial crunch. It’s not only convenient but provides business loans with greater flexibility, at lower interest rates and minimum paperwork.

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