Starting or running a business involves juggling short-term and long-term needs. While short-term needs demand immediate attention, it's crucial to strategize for the long haul, specifically addressing investments in fixed assets. This article delves into the realm of long-term needs, deciphering the complexities and offering insights on financing.
Defining Long-Term Professional Needs
In the business lexicon, "long-term professional needs" are synonymous with "investments." These aren't fleeting expenses; instead, they encompass purchases of durable goods that serve as the backbone of a business for over a year.
Types of Long-Term Assets:
- Intangible Assets: Software, trademark registration, goodwill, leasehold rights, etc.
- Material Goods: Tools, industrial equipment, means of transport, fittings, furniture, machinery, computer equipment, land, construction, etc.
Equity Financing of Long-Term Needs
The primary source for financing long-term needs is internal—funds straight from your pocket or those of investors. Social capital, representing the injected funds, serves as a financial cornerstone. This capital, though blocked, will be reimbursed to partners in specific circumstances.
Internal Financing Methods:
- Contribution in Kind: Transfer ownership of personally-owned property to benefit the company.
- Quasi-Equity: The blocked partner's current account contribution, remaining locked per the current account agreement.
Note: Contributions in kind may be subject to regulatory scrutiny, with a commissioner verifying assigned asset values.
External Financing of Long-Term Needs
Banks emerge as key players in financing long-term needs, offering two avenues: long-term borrowing or rental/lease. Deposit banks rely on customer deposits, while investment banks utilize their own funds, often supporting startups.
Exploring External Financing Options:
- Long-Term Bank Loan: Repayable over a period exceeding 5 years, requiring a personal contribution of at least 25%. A sound business plan showcasing profitability is essential.
- Financial Leasing or Leasing: Allows using property without immediate financial outlay. The bank or organization purchases the property, leasing it to your company for rents or royalties. At the end of the usage period, you may have the option to purchase the asset.
Note: While more flexible, leasing tends to be costlier than traditional loans.
Conclusion
Navigating the intricate landscape of financing long-term needs involves a judicious mix of internal and external sources. Understanding the nuances of contribution in kind, quasi-equity, bank loans, and leasing is pivotal for sustainable business growth.
FAQs: Unlocking Long-Term Financing Mysteries
Q: Why opt for internal financing?
- A: Internal financing, like contribution in kind or quasi-equity, allows leveraging personal or investor funds without external dependencies.
Q: What makes a business plan irreproachable?
- A: A solid business plan should exhibit impeccable financial viability and profitability to secure external financing.
Q: Are contributions in kind subject to regulations?
- A: Yes, contributions in kind may be scrutinized, requiring verification of assigned asset values by a commissioner.
Q: Why is a personal contribution essential for a bank loan?
- A: Financial institutions often mandate a personal contribution of at least 25% to ensure commitment and shared risk.
Q: Why does leasing cost more than traditional loans?
- A: Leasing offers flexibility but comes at a higher cost, factoring in rents or royalties paid during the usage period.
