The Sunday Mail
Money Supply: The total stock of money circulating in an economy is the money supply. The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets.
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Description: Valuation and analysis of the money supply help the economist and policy makers to frame the policy or to alter the existing policy of increasing or reducing the supply of money. The valuation is important as it ultimately affects the business cycle and thereby affects the economy.
Periodically, every country’s central bank publishes the money supply data based on the monetary aggregates set by them. In India, the Reserve Bank of India follows M0, M1, M2, M3 and M4 monetary aggregates.
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Equity Finance: Equity finance is a method of raising fresh capital by selling shares of the company to public, institutional investors, or financial institutions. The people who buy shares are referred to as shareholders of the company because they have received ownership interest in the company.
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Description: Equity financing is a method of raising funds to meet liquidity needs of an organisation by selling a company’s stock in exchange for cash. The portion of the stake will depend on the promoter’s ownership in the company.
One of the most sought-after methods of raising cash, apart from public issue, is via Venture Capital. Venture Capital (VC) financing is a method of raising money via high-net-worth individuals who are looking at diverse investment opportunities.
They provide the company with much- needed capital to sustain business in exchange of shares or ownership in the company.
A start-up might need various rounds of equity financing to meet liquidity needs. They (VC) may like to go for convertible preference shares as form of equity financing, and as the firm grows and reports profit consistently, it may consider going public.
If the company decides to go public, these investors (Venture Capitalists) can use the opportunity to sell their stake to institutional or retail investors at a premium. If the company needs more cash, it can go for a rights offer or follow on public offerings.
When a company goes for equity financing to meet its liquidity needs, for diversification or expansion purposes, it has to prepare a prospectus where financial details of the company are mentioned. The company has to also specify as to what it plans to do with the funds raised.
Equity financing is slightly different from debt financing, where funds are borrowed by the business to meet liquidity requirement. Ideally, to meet liquidity needs an organisation can raise funds via both equity as well as debt financing.
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Fully Drawn Advance: Fully drawn advance is a financing method which gives you the freedom to take funds or a loan but only for longer durations. It is an ideal way of financing assets which have a long shelf-life such as real estate or a manufacturing plant and equipment, etc.
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Description: Fully drawn advance allows a business owner to get access to instant cash, which could be repaid back on the agreed and predetermined schedule along with interest. In this type of advance, the interest rate charged could be flexible or fixed , but the loan is usually secured.
This type of loan is extended for a fixed period only. The full amount is given at the beginning of the loan. Usually, commercial banks and finance companies give out these loans.
This type of advance is more suited for individual owners as well as for partnership firms and big organisations. The lenders can work on a payment schedule which could be monthly, quarterly, yearly or after six months.
Credit cards, invoice financing, overdraft facilities extended by the bank, and line of credit are different types of ways a company access funds. When a company requires funds for a short term, then invoice financing is a good option. Here, the customer can get access to funds based on the invoices generated by the company.
An advantage of fully drawn advance with a fixed rate of interest is that the payment structure is known and remains the same till the loan is paid out in full. The rate of interest charged is comparatively less than in variable rate of interest loan.
The only disadvantage is that if your bank decides to reduce the rate of interest, you will not get the benefit because you have opted for a fixed rate of interest. Fully drawn advance allows a business owner access to instant cash, which could be repaid back on the agreed predetermined schedule along with interest.
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Invoice Finance: Invoice financing is a form of short-term borrowing which is extended by the bank or a lender to its customers based on unpaid invoices. Invoice financing is often carried out to meet short-term liquidity needs of the company.
