How does Debt Financing work for Businesses?

A great way to explain debt financing is when you borrow money that must be paid back with interest. For example, if you borrowed $50,000 for financing, then you must repay the full amount of $50,000 plus the interest amount as well. The amount of interest you pay will depend on the interest rate that you are assigned on the loan.

 Business owners look towards debt financing when they need money to expand their business. This type of loan helps provide business owners with enough capital to start growing their business. Debt financing requires collateral from the person borrowing the money. Collateral, also known as a security, helps provide an assurance that the money borrowed will be repaid. Whoever you seek financing from will always want some type of assurance or guarantee that the loan will be repaid along with the interest amount.

 Another form of financing that is similar to the one we are talking about is equity financing. The difference between equity financing and debt financing is that equity financing requires the business to give up ownership to get the loan. The amount of ownership that a business must give up depends on the amount of money being loaned. The great thing about debt financing is that you don’t have to give up any ownership of your business. You can instead use. Some examples of collateral that you can use for financing are real estate, vehicles, equipment, signed contracts and much more.

 Another benefit is that in some countries, the interest amount is deductible as an expense when paying income tax. When borrowing money, you want to make the right decisions. You can decide to get a short term or long term loan. The length of the term affects how much interest you will pay. The longer you have the loan, the more interest you must pay to the lender.

 Avoid trying to get a loan for an amount that will be difficult to pay back. You should always consider your current profit and revenue when planning on getting debt financing. Adding to much debt will increase the cost to run your business and could even affect your revenue. If interested, some places you can get a loan are financing companies, banks, and loan institutions.

The Basics of Forex Trading

Forex trading, also commonly known as foreign exchange trading or fx trading, is the activity of buying and selling currencies within the foreign exchange market. Investors and speculators typically look for low buying opportunities and high selling opportunities. Getting involved in fx trading requires the understanding of a few basic concepts. A good grasp of these concepts will set you on the right track for profitable trading.

Pip

 A pip is the unit used to count your profits and losses. In fx trading, all currency pairs at the exception of Japanese yen pairs are quoted to four decimal places. The fourth number after the decimal point is what investors count as pips. For example, if the EUR/USD falls from 1.3021 to 1.3018, investors would say the EUR/USD has fallen 3 pips.

Leverage

Leverage plays a major role in fx trading as the foreign exchange is a leveraged product. Therefore, to enter a forex trade, you are only required to deposit a percentage of the full value of your position of choice. You need to consider leverage when placing a trade as the potential for profit or loss can be significantly higher than your initial small deposit. Leverage options are typically 50:1, 100:1, or 200:1. For example, if you want to trade $100,000 of currency with a leverage of 100:1, you will have to deposit $1,000 into your margin account.

Margin

Margin is at the heart of forex trading. Margin is characterized by the amount of money you require to open a leveraged position. As explained above, should you wish to open a trade position of $100,000 with a broker who offers 50:1 leverage, you would need to put up $2,000 of margin. Should the trade go against you and the equity in your account reach less than $2,000, you would suffer a margin call and be required to put up more margin to keep the position open.

Prices

Forex quotes always position one currency against another called ‘currency pairs’. The base currency is on the left and the counter currency, on the right (EUR/USD). Price movements within the forex market are triggered by currencies appreciating in value (gaining) or depreciating in value (weakening). For example, if the price of EUR/USD is falling, this means that the USD is appreciating, while the EUR is depreciating.

Reasons why Good Credit Matters

From a very young age, many of the financial decisions you make can have a significant impact on your credit. In today’s world where many people are getting more and more dependent on credit for several services or products, your creditworthiness should always be at the forefront of your financial dealings. Since poor credit could be a major hindrance to achieving your goals in life, maintaining good credit is crucial. Here are 3 reasons why good credit matters.

1. Major purchases

At some point in your life, you will likely want to buy a car or a house. In order to do this, companies will look at your credit score to get a sense of how financially responsible you have been in the past. Getting a mortgage loan to buy a house is getting increasingly difficult with shorter terms available and stricter policies in place. As for a car, unless you have enough money upfront to pay cash, you will also need to request a loan for your purchase.

When a lending company evaluates if you are a good candidate for a loan, it looks at your overall credit score but also if you have been paying all of your bills and making any other debt payments on time. Such history allows the lending company to see if you could be trusted in paying back a larger sum of money over several years.

2. Interest rates

There are very few loan options with zero percent interest rates. When such a loan is an option, it is typically offered to individuals with the best and highest credit scores. For any other regular loan, you will be required to pay a certain level of interest on the principal of your loan. If your credit is in poor condition and a lending company is willing to offer you an option regardless, chances are you will be asked to be very high interest rates. The better your credit rating, the higher chances you have of paying less interest.

3. Your credit follows you for life

This is strong statement but one that could not be more true. It takes years to build good credit and it can be taken away very quickly if you do not maintain good financial practices. For example, if you miss payments on bills or loans, default on loans, or even declare bankruptcy, this information stays on your credit history for many years to come and will impact your life and the choices you are forced to make due to bad credit.

Good credit matters because it will make making major financial decisions much easier; you will not be limited in terms of what you wish to purchase (within reasonable limits), and when you do require a loan, you will be offered the best and most reasonable loan and payment options. It is definitely in your best interest to pay close attention to your financial dealings and ensure you are in good standings throughout your life.

Personal Finance Tips

In today’s capitalist society, the temptation to succumb to consumerism is ever-present. Managing your finances can be one of the most difficult, yet most rewarding challenges in your life. Here are 3 personal finance tips to help get you on the right track to financial happiness and freedom.


1. Know where your money is going
It sounds cliché but this tip is probably one of the most underestimated one when it comes to proper personal finance management. It truly does not matter how much money you make; if you do not know how you spend it or what you spend it on, you will never be able to assess your financial situation.

Every household, whether you are single or have a family, should have a budget. How complex and detailed it is is up to you, but by establishing your net income and required expenditures (i.e. mortgage, car payment, insurance, electricity), you will have a better understanding of how much cash flow you have at the end of every month.


2. Limit and control your debt 
Living without debt is not an easy goal to reach. Whether it is student loans, a new car, a house, or that long-desired television, debt accumulates quickly and easily. One of the most dangerous ways people start accumulating insurmountable amounts of debt is by using credit cards. If you are the type of person who has multiple credit cards, limit usage to one or two.

Too many credit cards is seen as a negative factor in calculating your credit score, and it also makes it easy to spend without keeping track of expenses. If you have debt with multiple credit card companies, consolidate them on the card with the lowest interest rate and try to make more than the minimum payment required each month. In planning your budget, keep a certain amount of money to use on paying down other debt such as mortgage and student loans.

Most plans allow for extra payments – over what is required on a monthly basis – which allows you to reduce your debt further and pay it off faster. Use your money on the loan that has the highest interest rate first.

3. Seek the help of a financial planner
Whether you can barely make ends meet or have a comfortable income, getting assistance from a financial planner will allow you to plan for your short and long-term financial needs and goals. Retirement plans and education-savings funds, for example, are complex and it is sometimes difficult to understand which one is better for your situation.

A financial planner will guide you through the various plans and together, you will determine which one suits your needs. Personal finance management should be a priority. With finances often being a point of contention in many households, if yours are well managed and in order, you will have more time to spend energy on other things that matter.

Making sound financial decisions should be part of your lifestyle; while you may have to work hard to achieve your goals at first, establishing some basic ground rules and principles will help you reach financial stability.

Invoice Financing

Available from banks and other financial institutions, invoice financing is a way for businesses to raise cash from their sales invoices the moment that they are raised rather than waiting for the customer to pay.



Sometimes known as invoice discounting or factoring, the business invoices their customers for work completed or products supplied in the usual way and submits a copy of that invoice to their invoice financing company who will pay a cash advance for a percentage of that invoice, generally around 80%. On the face of the invoice, there is usually included what is known as a ‘notice of assignment’ which advises the customer that the invoice had been assigned to the finance company and that payment is due to them rather than the original supplier.



When the invoice has been paid, the finance company will pay the supplier the remaining percentage of the invoice, usually around 20%, less any interest and charged for the service. The interest and the charges usually amount to more than would be charged for a standard overdraft facility or loan.



In essence, the finance company is buying the debt to the supplier at a discounted rate and invoice financing can provide going-concern companies with a boost to working capital. At the outset of the agreement, the finance company will normally purchase the outstanding accounts receivable and then purchase on-going invoices moving forward as well.



Depending on the type of agreement, companies can also benefit from the financing company providing credit control services as well and so removing an administration task from the supplier.



Whilst invoice financing can provide an initial cash boost and an on-going cash flow improvement, there are some drawbacks to this type of agreement. Although not necessarily true, some people view a company which is financing its invoicing as one which is suffering from financial difficulties and this can have a negative effect on sales. Invoice financing is also not the cheapest form of finance open to a company and, in some cases, charges and interest can be extremely high.



It should also be borne in mind that not all types of invoices can always be financed. For example, invoices for services in advance, such as annual support agreements, cannot normally be financed. In addition to this restriction, finance companies may impose a maximum percentage of total debtors that one single invoice represents.



The terms and conditions for different finance companies can vary considerably from the percentage of the initial advance on invoices provided, through interest and charges, to the potential requirement for personal guarantees on the agreement from the directors of the company so any business considering invoice finance as a source of working capital would be advised to obtain quotations from several different sources first.

When to Choose Structured Finance

When it comes to financing, there are tons of options available. You can get various types of loans and leases. But today, we would like to talk about another financing option that many people are not aware of. This method of financing is called structured finance. It is used through a complex service for unique situations to help finance companies.

When there are companies or borrowers in unique situations that need money, structured finance is usually the financial source of choice. This type of financing is not offered by all lenders and is usually given to those in need of a large capital when a simple loan will not do the job.

Some of the most popular financial instruments involved in structured finance are collateralized bond and debt obligations, various types of securities (assets, mortgages), credit derivatives and much more. There is a lot more variety involved, but these options mentioned above are usually the main components.

Risk transfer is one of the central components for this type of financing. There is usually a combination involved in structured finance that contains a mixture of the financial instruments mentioned above. Many people decide to go through this route because it is an alternative source of funding, which can be cheap when compared to other options. Interest rates and liquidity can also be key factors in certain cases.

Credit ratings also play an important role in structured finance! These are ratings that are applied to financial instruments such as derivatives, obligations, mortgages and others. Investors use credit ratings to help make their decisions. When it comes to credit ratings, there are different regulations applied to help keep them efficient and effective. This is done to provide accurate ratings that can be used by investors and the government.

Overall, when it comes to structured finance, it is a complex process for distinctive cases. It involves providing a financing option to those in need through a combination of different financial securities. These securities are arranged depending on what your situation is. For example, certain combinations might be used to increase cash flow while others are used for financing situations.  This should help you decide when it’s best for you to choose this financial option!

Portfolio management software can support you

How to Manage Your Investments

If one thing is sure with stocks and shares markets it’s that investing is hard work. With share prices fluctuating every day it’s very hard to keep track of when to buy and when to sell. It is also advised that you purchase a variety of stocks to reduce your level of risk; one successful UK spread betting trader (link to http://nakedtrader.co.uk/) mentions that he owns and maintains over 1000 shares! This form of spread betting requires a great deal of control and high level management; this is where portfolio management software can support you.

Reduce your Risk

The rule of thumb with investments is to make sure you have a stop loss for each share. A stop loss is the point that you will sell your share once the amount gets too low. Web based portfolio trackers are able to notify you when your share falls below this point so that you can make a decision on whether to sell. This kind of immediate information is vital for serious investors and can greatly reduce the risk that your share will continue to lose value. Good softwares can also notify you when specific stocks are rising or if there is a change in processing costs for a stock that you’ve ordered.

Transaction Tracking

If you are buying and selling a number of shares it is vital that you keep a record of what you currently own. Most software will show a list of your historic transactions to make sure that you never miss or forget something. These tools can often collate your investments to give you an idea of how much profit you have made or in some cases how much you have lost.

Reports

Getting information on market news, growth/decline and your own profits is a vital part of improving your knowledge and expertise as an investor. Many portfolio management systems will publish tailored reports for you to clearly shown the information that relates to you and your invesatments.