External Sources of Finance Essay Example | Topics and Well Written Essays - 1000 words

External Sources of Finance - Essay ExampleFinancing decisions are normally real fundamental considerations to be made by any multinational corporation like Acme which seeks to endanger into large scale operations. As such, the whole prerogative clearly rests on the finance managers to appropriately take away the best financing method out of the myriad option available in the world today. The variant option of finance that Acme asshole opt for are lucidly outlined below. The corporation can opt for the issuance of preference or ordinary shares in order to raise sufficient upper discipline for the foreign expansion. This is a major stemma of finance for close organizations across the world. Its advantage lies in the particular that it is non-redeemable. As such, it is an existing and permanent source of finance that is not to be re remunerative like new(prenominal)wise sources of fund. The quittance process only occurs upon the winding up of the company. On the contrary, it can be argued that this form of financing has the disadvantage of diluting the ownership strength of the company since it involves the addition of new shareholders into the company (Steffens 45-9). In the same vein, as the summate of shareholders increases, the control of the company becomes very difficult as decision making becomes very procedural and bureaucratic due to the wide consultation needed before any major decisions are made. Bank loansLoans from banks and other financial institutions are usually good sources of finance for business organizations. Obtaining such loans is always simple for most large organizations that are known to have wide capital bases. The use of loans as a source of financing has the advantage that it never leads to a loss of direction for the business as in the case of issuance of new shares. Bank loans are normally long- circumstance sources of finance and can always be obtained in large sums unlike other sources. In most cases, loans are empl oy to buy opinionated assets such as vehicles and machinery. The major disadvantage of using loans as sources of finance revolves around the huge interests paid (Gopalan 67). Most banks charge very high interest rates and it therefore becomes unprofitable to acquire loans without the confidence that the business will raise sufficient profits to cover for the high interest rates. Short term loans can also be obtained in form of overdrafts in which case most banks need no collateral. However, bank overdrafts are always charged at very high interest rates than other loans. Debentures The issuance of debentures is also another source of capital that Acme can adopt for its expansion program. Debentures are usually units of loan which a company issues to the debenture holders and are usually traded like shares. The advantages and limitations of using debentures are basically similar to those of most bank loans. The loans are usually obtained from other companies, individuals or financi al institutions. In that regard, Acme will then be prepared to repay the debenture holders the interest accrued. One collision characteristic of a debenture is that it is only backed by the company without any form of collateral like other loans. It therefore leaves the companys assets free which can then be used to obtain further financing in the future. Leasing Leasing is one of the most common sources of financing in the progressively competitive business environment. In essence, a business cannot purchase all the fixed assets it requires to set up operation in a foreign land. Leasing enables companies to