Finance, Credit and Investments

Finance, Credit and Investments- Part 4

Economical Course

We stopped at the definition of the investments in the capital work “economical course” for the special purpose, as, in it the author tried to discuss the concept of investments systemically and quite completely, herewith the book is published just now.

Changing native economical termini with foreign ones is purposeful, if it really matters (by keeping parallel usage of the native termini for the inheritance). We must not change native economical termini into foreign ones all together, when by ordinal traditional language easy to explain narrow and private concrete processes and elements get their own termini. The “movement” of these termini is approved in the narrow professional bounds, but their “spitting out” into the economical science may turn economical language into the tangled slang.

Except the termini “investments”, there are two more termini related with the investment. They are shown below.
” Human capital investment” – any activity provided for rising the workers labour productivity (in the way of growing their qualification and developing their abilities); at the expenses of improving the workers’ education, health and raising the mobility of the working forces”. It is very useful to use the mentioned termini, though it needs one correction: the human capital investments do not concern only workers, but also the servants, representatives of every kind of labour.

For today, in the most actual definitions, the capital investments are bounded only by financial means, when not only financial, but also the investment of natural, informational and material-technical resources takes place. Labour resources take an actual place in the investment process. They themselves fulfill this or that investment process.

Renewing.

Economical categories theoretically represent real, objectively existed productive relations. Generally, any educational process is fulfilled by the categories, which give opportunities for dividing the occasions and processes semantically, for expressing the definitions of a subject and realize their specific peculiarities and economic relations of a material world.

They apportion investment commodity, to which belong nonindustrial and industrial building objects, vehicles purposed for changing or widened technical park and the furniture, increasing others and reserves.

Widening;.

” Investment commodity, capital goods – a capital.”
In the official manuals of political economy of the reformation time the capital investments are discussed as “expenses for creating new main funds and widening, reconstruction and renewing the active ones”. In this definition the investments (capital placements) during separation of the forms (types) of further production of the main funds are bounded only by main funds (without increases of the circulation funds and insurance reserves):.

Human capital investment is “a specific kind of investments, mostly in education and health protection”.

As we’ve mentioned above, not long ago, in the well-known Soviet literature the concepts of “the placement of funds” and “investments” were accepted to be the synonyms and concerned to be investment of sources for further production of the main funds and formation of the turnover funds. We meet with such understanding of the concept of “investment” (here, they separate three types of the investment expenses: investments in the basic capital of investments, investments in the house building and investments in the reserves) in the modern economical publications and it is mostly used on the macro level during a statistical analyze of economical processes. In this concrete occasion investment is the category of reserve.

Reconstruction;.

” They call the total investments of production an investment product, which is directed towards keeping and increasing the basic capital (basic means) and reserve. Second consisting part of the total investments is represented by net investments – capital investments for the purpose of increasing basic means”.

We share wholly such definition, hence it follows that financial investments (if it is not followed by real investments as a result) do not increase real material wealth and real nonmaterial wealth. According to this context, the expression below is very important: “we must distinguish financial investments, which represent placement of the funds in the ways of selling and purchasing the securities for the purpose of getting profit and financial investments, which become cash and real, moved to real physical capital.”.

Our goal is exactly to substantiate investments – as an economical category and also, as a financial category in the narrow understanding.

You’ll meet below the definitions of investments from “the course of economy”: the investments are called “placements of fund into the basic capital (basic means of production), reserves, also other economical objects and processes, which request long-termed influxing of material and cash means. “According to the division of capital into physical and money forms, the investments too must be divided into material and cash investments”.

Here we apply for another manual thesis made by the academician Vasil Chantladze: “every financial relation is an economical one and every financial category is and economical one, but not every economical relation and economical category is financial relation and financial category”.

Compared with such definition of the investments (capital placement) the definition of investments in the dictionary attaching the “Economics” seems to be unimproved: “investments – the expenses of gathering production and industrial means and increasing material reserve”. Second consisting part of the total investments is represented by net investments – capital investments for the purpose of increasing basic means”.” Real investments are the investments in the economical branches and also, they are kinds of economic activities, which provide influxing the increases of real capital that is increasing material values of the industrial means”. According to this context, the expression below is very important: “we must distinguish financial investments, which represent placement of the funds in the ways of selling and purchasing the securities for the purpose of getting profit and financial investments, which become cash and real, moved to real physical capital.”.

Another occasion: it is advisable to discuss investments in two aspects: as a category of reserve and flow, which will reflect exactly the connection between “placement of funds” and “investments”.

Compared with such definition of the investments (capital placement) the definition of investments in the dictionary attaching the “Economics” seems to be unimproved: “investments – the expenses of gathering production and industrial means and increasing material reserve”. Not the investment expenses but (though the investments are followed by the appropriate expenses) exactly advancing.

” Real investments are the investments in the economical branches and also, they are kinds of economic activities, which provide influxing the increases of real capital that is increasing material values of the industrial means”. We can agree with such definition with one specification that material and nonmaterial values too belong to the real capital (wealth), consequently science-researching experimental-construction results, various information, education of the others and workers. Such service as organization of the excitable games, also the service of redistribution social wealth from one private person to another (except charity).

The concept of the industrial gathering appears, at the expenses of widening of basic, circulation funds and also insurance reserves takes place”.

We don’t meet with the termini “investments” in the earlier economical dictionary, but we meet the combined termini “investment policy” – the union of the industrial decisions, which guarantee main directions of the capital investments, the activities of their concentration in the determinant suburbs, on which the reaching of planned rates of development of the society production is depended, balancing and effectiveness, getting more and more production and profit of the national income for every lost Ruble”.

In the process of defining the investments, it is important to take in mind the sides of incomes, resources and expenses, because investment, from one side, is the result of the manufacture’s activity, and, from another one, – a part of income, which, in this case, is not used for usage.

We meet with such understanding of the concept of “investment” (here, they separate three types of the investment expenses: investments in the basic capital of investments, investments in the house building and investments in the reserves) in the modern economical publications and it is mostly used on the macro level during a statistical analyze of economical processes.

Recognizing the existence of the bounds between them, the authors ascribe short-termed investments to “one month or more” investments. A long-termed character of the fund placement is a significant feature of the investments (short-term doesn’t combine with the concept of investments).


Finance, Credit and Investments

Finance, Credit and Investments- Part 3

Banking crediting is the union of relations between bank (as a creditor) and its borrower.

These relations touch upon:

Herewith, there is a lot of common between the finances and credit as from the essential point of view, so according to the form of movement. At the same time, there is a significant distinction between finances and credit as in the essence, so in the form too. According to this, there must be a kind of generally economical category, which will consider finances and credit as a total unity, and in the bounds of this category itself, the separation of the specific essence of the finances and credit would take place.

When a manufacture or corporations use their cash funds and we mean the finances of industrial subject, such usage may be realized as inside the manufacture or corporation (there is no subject about returning or not returning of the usage), so gratis under conditions of returning. This latest is called commercial form because of transmitting the sources to others, but even in this occasion, it is the element of financial system of the manufacture and corporation.

From the essential position of expressing economic relations of finances and credit, we meet with cardinal distinctions between these two categories. Credit expresses distribution of the appropriate value only in the section of percentage given for loan, while according to the loan itself, a only a temporal distribution of money sources takes place.

In the discussing context we consider:.

The banks analogously needed concentration of the important own capital for influxing the consumers’ means and for getting higher percentage rate under the conditions of returning. Herewith, exactly on the financial basis, in the sort of financial fund (which later partially becomes loan fund) part of the bank capital appears to be the reservation (insurance) part of the fund, which by nature is financial and not loan. Notwithstanding the essential distinctions between finances and credit form the genetic-historical point of view, credit appears to be formed from finances and represent their modification.

The essential foundation of the credit essence and its important element is existence of trust between the two sides (in Latin “credo”, from which comes the word “credit”, means “trust”).

Its opportune returning;.

From the historical point of view, finances (especially in the sort of the state budget) and credit (beginning with usury, later commercial and banking) were developing differently for considering credit to be the part of finances. From the genetic-historical point of view, previous loaners, before giving loan, needed gathering the permanent capital not returning, that is the net financial foundation.

Getting percentage rate from the borrower for using the sources under his/her disposal.

Giving a certain amount of money to the borrower for definite purpose (though, we meet with the so-called free credits, aims and objects of crediting are not appointed in the assignment);.

From the point of cash means movement, main character of credit is the process of formation and usage of the funds of cash means under the conditions of returning and, as a rule, taking the value-percentage. If gating the credit value doesn’t take place (even in the exceptional occasions), according to the movement form, credit becomes a private occasion of finances, as from the net financial funds (consequently from the state budget) the loans which bear no interests may be used. If gating credit value takes place, by the appearance form, credit is discussed to be financial modification.

From the position of circulation of money forms (in the abstraction, historical process of formation economic relations and social budget and banking systems expressed by them) comparing different definitions of finances and credit, the paradox conclusion appears: credit is the private occasion of finances. And truly, from the position of movement of the money forms, finances represent the process of formation and usage of the funds of cash means. Very often such movements are fulfilled without returning, but sometimes, it is possible to give loans from the budget for the investment projects of other needs.

It takes place in any separate system of finances and credit, which have been touched upon during the analyses of defining finances and credit. Word combination “funding of the cash sources (fund formation)” reflects and defines exactly essence and form of economical category of more general character, those of finances and credit categories.

1) narrow and wide understanding of economical category of the finances;.

Discussing finances in narrow understanding under general traditional meaning;.

Discussing finances, as funding of the cash means, in wide understanding, which concerns finances – in narrow meaning and credit – in complete meaning.

Let’s sum up middle results of discussing new concept – “finance-investment sphere” and discuss its investment consisting parts.

It takes place in any separate system of finances and credit, which have been touched upon during the analyses of defining finances and credit.

In the Soviet economical science they for a long time used in the place “investments” the termini “capital placement”, which expressed the usage of the industrial factors in the sphere of real industrial activities during realization of capital projects. The termini “investments” and “investing” have the advantage towards the termini “capital placement” from philological and linguistic points of view, because they are expressed with one word. More concretely: “investment process”, “investment domain”, “finance-investment sphere” – all these termini are much more acceptable.

According to this, there must be a kind of generally economical category, which will consider finances and credit as a total unity, and in the bounds of this category itself, the separation of the specific essence of the finances and credit would take place.

From the position of circulation of money forms (in the abstraction, historical process of formation economic relations and social budget and banking systems expressed by them) comparing different definitions of finances and credit, the paradox conclusion appears: credit is the private occasion of finances. If gating the credit value doesn’t take place (even in the exceptional occasions), according to the movement form, credit becomes a private occasion of finances, as from the net financial funds (consequently from the state budget) the loans which bear no interests may be used. Notwithstanding the essential distinctions between finances and credit form the genetic-historical point of view, credit appears to be formed from finances and represent their modification.

Termini “funding” and its equivalent “fund formation” are used by us as the purposeful structuring of cash means, which is based on two poles – accumulation of money sources (gathering) and its usage for definite purpose in the way of financing and crediting.
We have established a new termini – “finance-investment sphere” (FIS). Analyses about interrelation of finances and credit made by us give us an opportunity of proving, that in the given termini, the word “financial” is used with the meaning of funding cash sources, its purposeful structuring. In this process we consider at the same time financial, credit and investments’ economical categories.


Finance, Credit and Investments- Part 2

Finance, Credit and Investments- Part 2

Welcome back to the Finance, Credit and Investments Series

This is the second article in the series and over the coming weeks, we will publish an in depth analysis of Finance, Credit and Investments.  We hope you find it informative.

We meet with absolutely innovational definitions of finances in Z. Body and R. Merton’s basis manuals. “Financial theory consists of numbers of the conceptions … which learns systematically the subjects of distribution of the cash resources relatively to the time factor; it also considers quantitative models, with the help of which the estimation, putting into practice and realization of the alternative variants of every financial decisions take place”.

For the goals of our monograph, it is important to compare well-known definitions about finances, credit and investment, to decide how and how much it is possible to integrate the finances, investments and credit into the one total part.
Some researcher thing that credit is the consisting part of finances, if it is discussed from the position of essence and category. The other, more numerous group proves, that an economical category of credit exists parallel to the economical category of finances, by which it underlines impossibility of the credit’s existence in the consistence of finances.

Credit is discussed in the following way in the earlier education-methodological manuals of political economy: “credit is the system of money relations, which is created in the process of using and mobilization of temporarily free cash means of the state budget, unions, manufactures, organizations and population. Credit differs from finances by the returning character, while financing of manufactures and organizations by the state is fulfilled without this condition”.

These quantitative models and basic conceptions are used at every level of getting financial decisions, but in the latest definition of finances, we meet with the following doctrine of the financial foundation: main function of the finances is in the satisfaction of the people’s requests; the subjects of economic activities of any kind (firms, also state organs of every level) are directed towards fulfilling this basic function.

This is the traditional definition of credit. In the earlier dictionary of the economy we read: “credit is the system of economic relations, which is formed while the transmission of cash and material means into the temporal usage, as a rule under the conditions of paying and returning percent”.

In the manual of the political economy published under reduction of V. A. Medvedev the following definition is given: “credit, as an economical category, expresses the created relations between the society, labour collective and workers during formation and usage of the loan funds, under the terms of paying present and returning, during transmission of sources for the temporal usage and accumulation”.

N. K. Kuchukova underlined the independence of the category of credit and notes that it is only its “characteristic feature the turned movement of the value, which is not related with transmission of the loan opportunities together with the owners’ rights”.
N. D. Barkovski replies that functioning of money created an economical basis for apportioning finances and credit as an independent category and gave rise to the credit and financial relations. He noticed the Gnoseological roots of science in money and credit, as the science about finances has business with the research of such economic relations, which lean upon cash flow and credit.

We meet with the following definition of credit in the finance-economical dictionary: “credit is the loan in the form of cash and commodity with the conditions of returning, usually, by paying percent. Credit represents a form of movement of the loan capital and expresses economic relations between the creditor and borrower”.

We meet with the following definition if “the course of economy”: “credit is an economical category, which represents relations, while the separate industrial organizations or persons transmit money means to each-other for temporal usage under the conditions of returning. Creation of credit is conditioned by a historical process of fulfilling the economical and money relations, the form of which is the money relation”.

Following scientists give slightly different definitions of credit:

At the same time we must distinguish two resembling concepts: loan and credit.

” Credit – is a loan in the form of money or commodity, which is given to the borrower by a creditor under the conditions of paying the percentage and returning rate by the borrower”.

Combining every definition named above, we come to an idea, that credit is giving money capital of commodity as a debt, for certain terms and material provision under the price of firm percentage rate. It expresses definite economic relations between the participants of the process of capital formation. Necessity of the credit relations is conditioned, from one side, by gathering solid quantity of temporarily free money sources, and from the second side, existence of requests of them.

Credit is giving the temporally free money sources or commodity as a debt for the defined terms by the price of fixed percentage. Thus, a credit is the loan in the form of money or commodity. In the process of this loan’s movement, a definite relations are formed between a creditor (the loan is given by a juridical of physical person, who gives certain cash as a debt) and the debtor.

A Loan is characterized by:

o Here, the discussion may touch upon transmission of money and also things form one side (loaner) to another (borrower): a) under the owning of the borrower and, at the same time, b) under the conditions of returning same amount or same quantity and quality of the things;

o The loaning of money may bear no interest;

o Any person may take part in it.
With the difference with loan, credit, which is somehow a private occasion of the loan, represents:

o One side (loaner) gives to the second one (borrower) only money, and _ for temporal usage;

A credit is the bank credit. To our mind, it is not correct to use “credit” and “loan” as the synonyms.

We meet with the following definition of credit in the finance-economical dictionary: “credit is the loan in the form of cash and commodity with the conditions of returning, usually, by paying percent. Credit is discussed in the following way in the earlier education-methodological manuals of political economy: “credit is the system of money relations, which is created in the process of using and mobilization of temporarily free cash means of the state budget, unions, manufactures, organizations and population. Thus, a credit is the loan in the form of money or commodity. Combining every definition named above, we come to an idea, that credit is giving money capital of commodity as a debt, for certain terms and material provision under the price of firm percentage rate. Necessity of the credit relations is conditioned, from one side, by gathering solid quantity of temporarily free money sources, and from the second side, existence of requests of them.

o In it creditor is not any person, but a credit organization (at the first place, banks).

If the assignment doesn’t foresee something), o It may not bear no interest.


Why Consider Alternative Commercial Lenders

Is new equipment procurement in the near future for your business? Have you looked into the different methods of financing thus far? The bank is one option for you but there are many Alternative Commercial Lenders that have programs not offered by the bank which can make the best solution more complicated to determine.

If you are like most company owners you will first look to your local bank or credit union for financing the acquisition of your new equipment? Is this the most prudent manner to handle the purchase? Most often just going to your bank is not the best answer. It may or may not surprise you to find that Equipment Finance Companies will have lending options that will work better for your company that will not involve you having to offer nearly the amount of security that a bank would typically seek.

What is the most significant difference between the bank and the Alternative Commercial Lenders?

Alternative Commercial Lenders

Is it best to do a straight buy for the procurement? Your accountant would be the expert you need to consult with to determine which structure is best as there may be tax implications when looking at the options of depreciation versus expensing the entire payment but with the options in the market, you will be able to choose which is best for your situation. Per the previous disclaimer, this article is not intended to give tax advice in any manner, it is meant to inform of options, but you may be able to expense the entire equipment finance payment in the year that the payment was made, rather than having to carry the depreciation over several year as allowed by the tax and accounting guidelines. Most of the time when you have to expense the purchase of an item of equipment, you will need to spread the payments over more years than the payments you are making. With a lease, you can usually expense the lease payment in the year your make the payments for a more immediate benefit to you tax wise.

There are very few limitations to the availability of Equipment Finance options based on industries so whether you are looking for trucks, computers, buildings, boats, radio equipment or machine presses you will be sure to find choices. Your company’s needs should be able to be met due to the sheer number of Commercial Funders available to assist your business regardless of what industry you are in or what equipment you are in need of.

As you may expect, the finance rates for Commercial Equipment Financing do vary quite a lot. As with most Alternative Commercial Lenders’ Programs the credit risk it the most important factor which takes into consideration the credit profile of the proprietors of the enterprise as well company itself. After credit ratings are taken into consideration, the next item to be considered is the amount to be financed. Most Alternative Commercial Lenders do have minimum deal sizes due to the cost of doing business as their are certain fixed costs associated with the transaction as would be expected.  As this is the case the general minimum amount that is considered acceptable would be $5000 but do keep in mind that there are many lenders that have minimum required transaction sizes higher than this.

Unfortunately not all regions do have Commercial Equipment Lenders that service them. There are jurisdictions that exist in the world that Commercial Finance Companies just will not do business in due to elevated risk. In cases where there are no Alternative Commercial Lenders, your only real option very well may be the bank where you can seek traditional financing for your company.

In closing, should you be intending to add equipment for your company you do owe it to yourself and your company to look into the various options available at Alternative Commercial Lenders today.

Using your precious cash reserves for purchasing equipment may seem like a prudent thing to do and if you can afford that, good for you, just be careful not to leave your company strapped for cash if collections do not come in as planned.


Small to Medium Enterprise (SME) Lending

Over the last years it has become really noticeable that the arena of SME Lending has grown like never before.  As of right now, your business has access to many lending products and more lenders on a national and international basis than ever before. This new evolution of Small Business Loans will allow your business to have access to funding from all over the globe.

Traditional SME Lending

If you prefer to deal locally, you can visit your nearby bank and apply for a bank loan there.  When you do, be sure to should bring your identification, company organization and registration docu

ments, two years of audited financial statements and tax returns which includes a confirmation letter of your tax department confirming your taxes are current. Also, a Business Plan might be required along with filling out the application with bank agent.SME Lending

Once the required documentation has been received by the bank, they will request a formal credit report in the respective credit reporting agency of your county. Assuming that the report is favorable with respect to credit score, outstanding judgments/collections/liens, your ratio of debt servicing to revenues falls within the permitted limits and you should be given an offer to finance by the bank. In the case where you do proceed with the loan, they will deposit the funds into your account once you have signed all necessary documents and the bank has placed a lien on all assets of your business in addition to your personal assets (as they will likely also be pledged as security for the loan). To maintain the proper expectations, it is important to acknowledge that the processing time for you to get the funds deposited into your bank account, from the time that the complete application has been submitted, can typically span 10 to 12 weeks. No urgent situations should be considered when considering this type of financing.

Alternative SME Lending

Should you be interested in working with Alternative SME Funders (not banks), it should be noticed that the approach and security required in not as restrictive. Typically speaking you are going to find that the Alternative Commercial Lenders in the market place will require bank statements for the recent 12 of months, ID along with a letter of explanation of what the funds will be used for, in addition to the formal application with the lender. The processing of your application will then take place which ordinarily is carried out in a matter of a couple of days. When all has been accepted, approval and documents will likely be issued within hours in most of situations, not weeks. Upon receipt in the endorsed agreement by the Alternative Commercial Lender, the actual funding will probably be scheduled for the following day. Some funders require a wet signature (handwritten) and others will accept a digital signature/scanned copy. Most funding contracts will stipulate required items that have to be completed before transmission of funds. The time period from application until funding is usually under a week. My individual record is three days!

Bank loans can be a pretty cumbersome and painful, taking weeks or months to wade through application forms and hurdle after hurdle  to jump over to get the loan you need to take your company to the next level.

Traditional and Alternative SME Lending Compared

Aside from the simplicity and efficiency of alternative SML Lending, there is yet another distinction. This really is the expense. It does have a higher cost to utilize non-traditional Small to Medium Business Lenders and it is up to the business owner to ascertain if the additional expense outweighs the benefits of having the ability to fund quickly and skip over all the red tape of the traditional bank.  Every single company is unique and therefore has distinctive requirements. Only you can decide what’s the very best for your enterprise. The reason all the different varieties of funders exist is because of the distinctive varieties of borrowers of the market.  The decision of what to do is yours.