Essay Sample on Financing Capital: Internal vs External Sources

Introduction

Sourcing of the funds can always be done for various reasons. The traditional areas of needs night are required for capital asset acquirement- construction of the new building or demand for new machinery or depot. The creation of the new products could be massively costly and here, the need for capital is required. Ordinarily, such kinds of developments are always financed internally, whereas equity on the acquisition of the machinery might come from the external sources. In this age and day of tight liquidity, allot of the organizations have gone to short term capital in the way of loans or overdrafts in the form of providing the cash flow cushion. Hence, the interest rates vary from one organization to the other and also per a purpose. The structure on how to handle this is by;

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We will have to look at the various forms of the shares that are the means of raising the retained earnings and new capital as another source. Although this may be the traditional form of raising funds, they are by no means the only ones. There are many ways of getting funds that are available to organizations that do not wish to become public through the means of share issues. These options entail franchising, venture capital, government assistance, and bank borrowing. All of them have disadvantages and advantages and the risks attached.

An organization may raise its funds from various sources in need of funding sources and their suitability both in meeting their re-financing needs and capital cost for the project. The capital markets which includes rights issue and new share issue, like, the companies acquiring stock marketing list for the first time, venture capital, business expansion scheme funds, government funds, bank borrowing, loan stock, and retain earnings. The ordinary share is always issued to the ownership of the organization. That is, they have face value or nominal, which is typical of $50 or 1 cent. Its market value of the hotel of the quoted price always bears no relationship on their nominal value and is exempted when the ordinary shares are issued in terms of cash. Thus, its amount must always be equal or more than the nominal value of its shares. There are the deferred ordinary shares which are the form of the ordinary share, and are mainly entitled to a dividend only at a particular date or when the profits rise above its certain amount. Hence, the ordinary shareholders always put the funds into the firm or the hotel; through retained profits, paying off the new issue on the shares. By merely maintaining its earnings, instead of spending it through dividends, it always offers an essential, simple, low-cost source on finance, though this kind of method might not provide enough funds, i.e., if the firm is seeking to grow.

Therefore, in the financing of the project, that is the raising of the funds in funding on the economically separable capital investment where the lenders significantly look at the cash flows from this particular project as being the source of the funds in servicing of their loans and providing of the returns. As such, it tends to be of limited resources because their lender mainly not relies on the existing assets as security or collateral. The best funding is through by privatization through pre-sale, contractor's financing, joint ventures, equity participation, forward sale including leaseback and deals, syndicate loans and internal funding. The internal funding is those funding sources that are mainly found within the company's revenues and assets, while the external funding is mostly from the outside for example, banks, investors, capitalists, and ventures. Its advantages are that they are; essential in the sense that they make decisions faster as compared to the external which you might lose an opportunity more quickly. The cost of it is always low; they have no loan interest fees and no credit card. It does not depend on the loan funding.

Additionally, a company does not require any collateral when using its resources. Hence, it makes it more flexible as it moves forward. It also keeps all the power within the company. Borrowing from banks is an essential factor of its source in finance in companies. Lending from the bank is majorly a short term, although, during the recent term, lending has been familiar to date. This lending is always in the form of an overdraft, whereby the company should always keep within the time set by the bank and at a variable rate.

Any cooperation which hopes to be in operating a business that takes the deposits or banking business must always get on the issue from HKMA. This mainly comprises of the deposit-taking companies, restricted license banks, and the compromised license banks. These are mainly classified per the amount and the term deposits accepted and nature of its business and are in together known as authorized institutions. The best suits on the building of the hotel are on the licensed banks which operate in a current and terms of the saving accounts, it always accepts deposits of any maturity and size from the public, collects, or paycheque paid in by the customers or drawn by the customers.

Conclusion

Conclusively, a process of due diligence will have to be followed to the later, in ensuring all the information has to be submitted by the prospective borrowers and be verified as being accurate. They help the making aware of the relevant risk factors and keeping of the participants and in seeking the legal opinions and a contingency plan.