Why is it difficult for sole traders to obtain finance?

Why is it difficult for sole traders to obtain finance?

Financial institution that finances small and microenterprises.

These, unlike investment decisions, are made when a long-term project is in mind. When making financing decisions, options are sought in the financial markets in order to finance a business or company in formation.

In order to make appropriate financing decisions, a study of efficient markets is needed. This involves analyzing the financial market and deciding which of the options is the most appropriate for our business or company’s purposes.

The theory of efficient markets, developed since the 1970s, tries to acquire as much information as possible to try to predict the behavior of the markets and, in this way, make the most appropriate decisions.

Although there are some economists who argue that the efficiency of a market cannot be known, since it is always changing, it is undeniable that those who keep themselves informed about prices and their variations have a greater chance of being successful in the financial and stock markets than those who remain on the sidelines.

Importance of investment decisions

The main mistake of entrepreneurs is to think that creating a business is easy. It is not enough just to have a good idea, but it is also necessary to have patience to put it into practice and to be willing to defend the project during the time that the preparations and paperwork may take. It is also not easy to get financing if you do not have sufficient equity capital.

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The initiative or project of creating a company is generated from an idea that arises from the observation of the economic reality in which we move. In it we detect possible business opportunities that lead us to the introduction in the market of certain products or services demanded by the society that either lacks them, or if it has them, they do not adequately cover their needs.

Bearing in mind that most taxes are due annually, and that quarterly tax returns, settlements or installments or payments on account have to be made, there is the same formal obligation, for the purposes of annual returns, for those who start an activity on January 1st as for those who do so on December 30th, and the same quarterly obligations for those who start their activity at the beginning or at the end of a quarter.

Examples of financing decisions in a company

Leading financial advisors have shared their best financial advice. We will discuss the types of decisions, the factors involved, as well as tips and advice to help you find a financial balance.

Decision-making is a complex process that consists of evaluating the pros and cons of a situation related to money, which has direct repercussions in all sectors of a company; in the case of personal financial decisions, these have an impact on the survival and economy of the user.

The specialist Antonio Hernández classifies financial decisions in two general types: investment and financing decisions; however, other experts add two more classifications: operation and dividends or profits.

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Investment decisions, then, are those in which the destination of the available resources to acquire assets is questioned, with the objective of maintaining an optimal operation in the company.

What financing decisions consist of

Aimed at SMEs, this financing alternative consists of a contract whereby a company transfers the service of future collection of existing receivables and invoices in its favor and, in exchange, immediately obtains the money from these operations, albeit at a certain discount.

Bootstrapping refers to the financing of projects through the founders’ own savings and income generated from turnover, without relying on external financing such as investments or loans. This formula, popularized in the wake of the 2008 economic crisis, requires lowering expectations in the short term and investing all efforts in obtaining revenues to subsequently invest them in the growth of the business.

Service exchange or ‘bartering’ involves reaching commercial agreements with other companies by obtaining a benefit without monetary exchange. Although it is not a direct financing system, it helps to reduce fixed costs and can lead to savings that can be used to cover other needs. However, this option has some negative aspects: it creates a relationship of dependence between the companies and there is a risk that one of them will not comply with the agreement. There are two types of bartering:

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