One use. Banks are reluctant to allocate funds

One of the most common
problems in the small business segment is the lack of financial resources. Use
of different funding sources is the basis for effective management of the
enterprise. Any firm goes through several stages of its development, for each
of which it faces certain problems related to managing the sources of financing
its activities. The firm may have problems related with a lack of experience in
managing cash and lack of demand and trust. In addition, there are many other
reasons why work at the initial stage will not bring profit. Investment is
simply not enough for effective development and growth of their activities.
Therefore, in order to accelerate the growth of its enterprise, many
entrepreneurs usually resort to borrowed capital. The most common borrowed
source of financing is credit, however nowadays small businesses face some
problems with their use. Banks are reluctant to allocate funds to new
enterprises. This applies to public credit institutions. Only 10% of all applications
are satisfied. This can be explained by the fact that every new business is
always a risk, and banks are not very fond of risking. A new business can cease
to exist, without justifying the hopes of its creators. This is what happens in
many cases. The new business starts to “brake” even in the beginning,
and payment of a cash loan becomes impossible. In addition, loans to banks are
issued for a short period of time, for which it is difficult to do. In this
case, they should refinance. There is also a kind of raising capital, for
example, leasing. This is already a fairly common form of financing, in which
the property is transferred to long-term lease with the subsequent right of
repurchase and return. Under the standard scheme of leasing, the user of the
property gradually redeems it, eventually falling into the property. The
duration of the leasing agreement is on average three to five years – depends
on the value of the property. This is a direct leasing. There is still a return
contract. If an organization has expensive equipment or a technical structure,
it can sell it to a leasing company. At the same time, it will provide the
organization with the former property for rent with the right to purchase it.
As a result, you can get money and do not stop using property that will
eventually become property again.

Leasing, like other
forms of financing, has its drawbacks:

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ü  The
high cost of a transaction that exceeds costs, such as buying a property for
own funds, and the cost of a loan transaction. There is a risk of an increase
in the rate set by the lessor, which can provoke a significant increase in the
cost of leasing.

ü  Quite
a complicated scheme for registering the transaction. A large number of
participants and the complexity of clearance procedures can lead to problems
and mistakes that entail financial losses.

ü  If
equipment is used, damage, malfunction or technical obsolescence of the
property may occur. In accordance with the contract of the parties, it is
necessary to make payments for leasing, trying to eliminate the cause of the
problem.

ü  Real
estate in leasing is legally the property of the lessor. This fact is able to
influence the possibilities and rights of the lessee to dispose of the object
of leasing. To make changes and modernize the property before its repurchase
into the ownership of the lessee has no right.