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.