Financing plays a key role in starting and growing a RTA cabinets business. The overview is intended to show different sources of financing and serves as an introduction to the topic.
A company has very different financial needs at different stages of the company. On the one hand, the financial requirements are subject to considerable fluctuations. On the other hand, the origin of the funds usually changes as well.
Financial needs at different stages of RTA cabinets business
Depending on the origin of the funds raised, external financing and internal financing can be distinguished. This depends on whether the company’s capital is made available from outside via the credit or capital market or is worked out in connection with the operational service provision.
While third parties lend borrowed capital to the company for a certain period of time, equity is the funds raised by the owners of a company or left in the company as profits.
Securing the financing of your company is a challenge for young entrepreneurs. On the one hand, internal financing through self-financing or financing from depreciation or provisions is hardly possible in the initial phase of a company. On the other hand, relationships and trust with banks and investors must first be established. Especially in the first phase of founding a company, when the ideas are born and should be turned into reality, young companies are often dependent on family or acquaintances when looking for financing.
Because internal financing is hardly possible for a young company, external financing is gaining in importance. When it comes to external financing, a basic distinction is made between credit financing and equity financing. There are also various special forms such as factoring or leasing.
With credit financing, loan basis makes capital available to the company. Bank loans and private loans also play an important role.
Creditors want to reduce their risk of default as much as possible and therefore place certain requirements on companies. If young entrepreneurs are looking for bank financing, for example, they must clearly justify and identify their need. The banks base the lending on a credit check, which is usually based on a business plan.
Banks adjust credit conditions to the individual risk by means of risk-adjusted pricing. The banks use the earning power of the company as a basis and then assess the risks using internal rating models.