Planning for Growth

Planning for Growth

Executive summary

Here in the report, the different sources of funds that are available for the small and medium-sized enterprises will be discussed elaborately with the drawbacks and benefits of each source. Then the most appropriate source will be analysed for their suitability in the chosen organisation that is Ford-way solutions.

Introduction

When an organisation is planning for growth it has to focus upon a lot of elements like strategies, resources available, techniques to be used and so on, however, the most important element is the availability of funds and sources of finance which act as a great supporting element for growth and expansion (eFinanceManagement, 2021). Thus here in this section of the report, the potential sources of funds will be discussed along with respective pros and cons and the most suitable will be applied to Ford-way solutions as the chosen organisation.

LO2:

Assess the potential sources of funding available to businesses and discuss the benefits and drawbacks of each source.

As discussed above for growth and expansion as well as usual day to day activities a business organisation requires potential sources of funds that act as supporting elements (Detzer et al., 2017). Within the market for business assistance there are many sources of finance available which are as follows:

Bank loans: This has to be the most common source of finance available for the SME’s. The banks have a separate department that offers loans to the companies. To receive a loan the company is supposed to fulfil basic criteria which are usually related to credit scores, annual turnover, earnings and revenues. There are various kinds of loans like loan against property, working capital loans, and term loans and so on (eFinanceManagement, 2021). The main benefit of a bank loan is that it is available at low rates of interest which is so economical. However, the main drawback is that it is usually challenging to get this loan passed and qualify too and it is a time-consuming process (Digital.com, 2021).

Government programs: Since the bank loans are difficult to get qualified there is an easier option offered by the government especially for the SME’s who face difficulty in fulfilling the basic criteria’s. Even though the bank loans are cost-effective, to fulfil its drawback the government funds helps in fulfilling the gaps by offering financial support. The main pro is that the loan is guaranteed by the government and thus the risk level is quite low when compared to bank loans and the loan terms vary between 7-25 years. However, the drawback is that to get the loan the business should have a plausible and solid plan (Lee and Black, 2017).

Crowdfunding: This is one of the latest sources of funds available for businesses. In the method, funds can be raised by borrowing a small amount of money from the public. For example, a company can keep proposal to invest $10 each and even if 1000 people are ready to invest the company will be able to raise $10000 at one go (Bagheri et al., 2019). The main benefit of this source is that it offers great flexibility upon the proposals made. However, the drawback is that if the project for which the proposal was kept failed, it can destroy the image of the businesses and loss of money who invested in it (Detzer et al., 2017).

SBA Loans: This financing option varies depending upon the needs and requirements of the borrower's needs. The small business administration guaranteed loans are offered by private lenders and are guaranteed up to 80% which reduces the overall risk and thus makes it a suitable source of finance. The guidelines for SBA loans are quite similar to those of a normal bank loan. The benefit of this loan is that the interest depends upon the term for which the loan is taken and thus it is not fixed. However, the drawback is that it requires the borrowers to pledge an asset as collateral (Digital.com, 2021).

Evaluate potential sources of funding and justification for the adoption of an appropriate source of funding for a given organisational context

Discussing the company Ford-way solutions the credit rating of the company is quite exceptional that is one of the most important criteria in obtaining a majority of the sources of funds. As the company already has an overdraft facility arrangement with the bank of worth 2 million Euros it opts for it for better growth activities and expansion (Shrotriya, 2019).

Apart from the overdraft option, the SME can choose the bank loan option. This is because for getting a bank loan passed it is highly essential that the company’s credit rate/ score is good otherwise it does not stand eligible. Obtaining the bank loan will be a cheaper option for the company when compared to the other sources of funds as the interest rates might vary between 2.24% to 5.43% which is quite low when compared. Also as the company will apply for the loan in a specific bank the interest will be paid on the loan amount and no additional share of the business will be required. Lastly, since the interest rates will be fixed for a particular term it will be easy for the company to forecast the payments of interests (Detzer et al., 2017).

The second option which will be quite suitable for the company is crow funding which is a relatively new source available for small and medium-sized businesses (Short et al., 2017). As the company is aiming towards a massive expansion and growth it can create an attractive proposal in front of the investors (mainly public) to invest in the company. For instance, it can lay a proposal with an amount of $12 per person with a capacity of 500 investors so it will be able to raise an amount of $6000.

As 2 months has been anticipated for proper strategizing and planning both bank loans and crowdfunding will be enough to raise substantial funds for its expansion program in a smooth manner (Bagheri et al., 2019).

Conclusion

Thus it can be concluded by saying that a reliable source of fund and capital must be available to keep a business going smoothly but arranging and raising capital is not that easy as it seems thus making the correct choice is the key. Thus crowdfunding and Bank loan will be the best option for Fordway solutions for its expansion program.

Reference list

Bagheri, A., Chitsazan, H. and Ebrahimi, A., 2019. Crowdfunding motivations: A focus on donors' perspectives. Technological Forecasting and Social Change, 146, pp.218-232.

Detzer, D., Dodig, N., Evans, T., Hein, E., Herr, H. and Prante, F.J., 2017. Sources of Funds for Business Investments: Non-financial Corporate Sector and Small and Medium-sized Enterprises (SMEs). In The German Financial System and the Financial and Economic Crisis (pp. 155-173). Springer, Cham.

Digital.com. 2021. Small Business Financing: All Options For Your Startup [Including The Weird Ones] - Digital.com. [online] Available at: <https://digital.com/small-business-financing/> [Accessed 10 February 2021].

eFinanceManagement. 2021. Sources of Finance for a Small Business | eFinanceManagement.com. [online] Available at: <https://efinancemanagement.com/sources-of-finance/for-small-business> [Accessed 10 February 2021].

Lee, W. and Black, S.L., 2017. Small business development: Immigrants’ access to loan capital. Journal of Small Business & Entrepreneurship, 29(3), pp.193-209

Short, J.C., Ketchen Jr, D.J., McKenny, A.F., Allison, T.H. and Ireland, R.D., 2017. Research on crowdfunding: Reviewing the (very recent) past and celebrating the present. Entrepreneurship Theory and Practice, 41(2), pp.149-160.

Shrotriya, D.V., 2019. Internal sources of finance for business organizations. International Journal of Research and Analytical Reviews, 6(2), pp.933-940.