Corporate finance deals with the financial decisions made by companies and organizations. It includes the management of financial resources, such as investments, financing and financial planning.
Understanding corporate financing and how your business can obtain finances is critical for companies to make informed decisions that increase profits, reduce risk and ensure long-term sustainability.
In this article, we will explore the basic concepts of corporate and institutional financing, its various applications and importance in the business world, and guide you on how to choose the best financing for your organization.
The importance of corporate finance in the business world
Obtaining financing is often important in the success of companies. Here are some of the reasons why financing is a critical factor:
- Enhancing shareholder value: The main objective of granting financing to institutions is to enhance shareholder value and profits. By making sound financial decisions, companies can generate profits, increase the value of their shares, and provide returns to their shareholders.
- Capital Allocation: SME financing helps these enterprises allocate their capital in the most efficient and effective manner. This includes managing potential investment opportunities, evaluating risks, and identifying ways to access funding.
- Risk management: Institutional and corporate finance helps manage corporate financial risks by identifying potential threats, such as market volatility or credit risk. By managing these risks, companies can reduce losses and ensure their financial stability.
- Financial Planning: Corporate finance involves developing and implementing financial plans to achieve long-term goals. This includes creating budgets, forecasting cash flow, and managing debt and equity financing.
- Decision-making: Grant financing for small and medium enterprises provides a framework for making informed financial decisions. By analyzing financial data, companies can make informed decisions about investment opportunities, financing sources and capital structure.
- Raising capital: Obtaining term financing for organizations helps raise the capital that organizations need to operate, grow and innovate. By identifying the best sources of financing, organizations can access the capital they need to finance and expand their operations, and invest in their ideas.
- Corporate Governance: Corporate finance plays an important role in corporate governance, which means the systems and processes that ensure that a business is run responsibly. By implementing effective corporate governance practices, companies can maintain stakeholder confidence, attract investors, and mitigate the risk of financial scandals.
- Strategic Planning: Funding new enterprises is an essential component of strategic planning. By developing financial models and forecasting cash flows, companies can also assess the potential impact of different scenarios, and make informed decisions about their future investments and strategies
The basics of corporate finance
Corporate finance is built on several basic concepts that are necessary to understand how each organization manages its financial resources.
Here are some basic concepts to help you understand how financing works:
- Time value of money: This concept refers to the idea that the value of money today will be more than its value in the future, because there is an opportunity to invest and earn a return. In financing a new enterprise, techniques such as cash flow analysis are used to calculate the time value of money in the decision-making process.
- Risk and return: Corporate and institutional finance is concerned with balancing risks and returns. Companies must consider the risks associated with any investment opportunity, and weigh them against the potential returns. This includes understanding concepts such as risk management, structuring and cost of capital.
- Capital budget: It is the process of identifying, evaluating, planning and financing major investments. Capital budgeting involves estimating the cash flows associated with each project, and using financial models to determine the potential return on investment.
- Capital Structured: This refers to the mix of debt and equity financing that a company uses to finance its operations. Corporate finance is concerned with optimizing capital structure to reduce costs and increase shareholder value.
- Financial statements: These are the reports that summarize the activities and financial performance of a company. Corporate and institutional finance professionals use financial statements such as the income statement, balance sheet, and cash flow statement to assess the financial situation and make informed decisions.
- Corporate Governance: Corporate and institutional finance professionals play an important role in ensuring that companies stick to best corporate governance practices, such as transparency and accountability to stakeholders.
How does Al Raedah help you obtain financing for your business without monthly installments?
Al Raedah Finance Company is one of the most important Sharia-compliant financing companies in the Kingdom of Saudi Arabia. Al Raedah undertakes the task of supporting small and medium-sized enterprises by providing quick and simple financial solutions that suit their requirements and help the growth of these enterprises in accordance with the provisions of Islamic Sharia, and without monthly installments, so that payment is through sales and not through installments.
The financing solutions provided by Al Raedah suit the needs of small and medium-sized companies and can enable them to achieve their development goals by raising their financial capacity to provide more products and expand their business, by opening more branches or increasing the number of workers and employees and meeting their expenses.
Al Raedah can provide business owners with an urgent source of liquidity in record time by applying directly through the company’s website at any time and wherever you are in the Kingdom of Saudi Arabia.
The process of providing financing services is also characterized by the ease and flexibility of the payment mechanism, which is based on deduction without any fixed monthly installments, as well as the ease of requirements and devoid of any guarantees or complications, as the organization is satisfied with the account statements only without the need for any paper complications or financial statements.
The most important characteristic of our loan-granting mechanism is that there are no fixed monthly payments or installments, as Al Raedah follows the deduction method to pay off the loan gradually. The repayment process takes place automatically and every day in the form of a fixed and small percentage of the customer’s future sales, and for this reason the customer will not be restricted to a fixed repayment period, which enables him to focus more on benefiting from the financing obtained to achieve goals instead of worrying about repayments at the end of each month .
How to choose the best financing for your organization
Choosing the best corporate financing can be a complex and challenging process. Here are some steps you can take to help you choose the best possible financing:
- Determine your financing needs: Start assessing your financing needs. Consider factors such as how much you need, what you plan to use the money for, and projected cash flow. This will help you decide which type of financing is best suited to your needs.
- Assess your creditworthiness: Lenders and investors will assess your creditworthiness when considering your financing application. This includes factors such as your organization’s business history and financial data. Consider your creditworthiness when deciding your financing options.
- Explore financing options: There are many different financing options available to companies, such as bank loans, lines of credit, crowdfunding, and venture capital. Research each option to determine which one best suits your needs, and consider factors such as interest rates, fees, payment terms, and collateral requirements.
- Determine the costs and risks: Consider the costs and risks associated with each financing option. For example, a bank loan may have lower interest rates than the credit limit, but may require collateral. While crowdfunding may not require any collateral, it may have higher fees than other options.
- Application processing: Once you have selected the financing option best suited to your needs, prepare your application. This may include preparing a business plan, financial statements, and other documents required by the lender or investor.
- Negotiate Terms: Negotiate the terms of your financing agreement to make sure they are fair and reasonable. This may include comparing interest rates, payment terms and the rest of the terms of the agreement.
By following these steps, you can choose the financing option that best suits your business needs and enhance your chances of securing the right financing on your terms.
Why is Al Raedah one of the best organizations to support small business owners?
Al Raedah Company’s programs are designed to give owners of small and medium businesses the easiest and best ways to access financing that is compatible with Islamic law and with payment methods of their choice, and to provide permanent and integrated support to investors and business owners in order to develop their businesses. In the process, Al Raedah is becoming one of the best organizations that support small and medium enterprises in all of Saudi Arabia.
Among its most important programs are:
Point of sale financing program
The POS financing program is allocated to the owners of small and medium enterprises, to achieve their desired goals and develop their business by gaining fast and appropriate financing without monthly installments.
Terms of the financing program:
- The POS financing program does not require a guarantor or guarantor.
- No monthly installments needed.
- You must own POS devices for at least three months.
- The method of payment is daily through points of sale.
- The annual percentage rate ranges from 14%-78%.
- One-time fixed administrative fee of 1.5% (or at least 5,000) SAR.
- A value added tax of 15% applies.
- Financing is up to (21%, 38%, 50%) of the total annual POS sales with a repayment period of one, two or three years, respectively.
- The financing amount for unsecured facilities starts from 50,000 SAR and goes up to 1,500,000 SAR. As for secured facilities, we offer more financing on a bespoke basis for each case.
E-commerce financing program
Al-Raida offers an e-commerce financing program to clients active in the fields of technology and e-commerce, to obtain financing according to monthly sales.
Terms of e-commerce financing program:
- Offered to electronic stores that have a commercial registration with an annual income of up to 250,000 Saudi riyals.
- Payment is by weekly or monthly transfer.
- You can choose from 6, 9 or 12 month packages.
- The annual percentage rate ranges from 23.52% – 40.69%.
- A one-time administrative fee ranging from 1% – 1.5% is paid.
- The minimum financing amount is 50,000 Saudi riyals, and the maximum financing amount is 1,500,000 Saudi riyals.
- You can apply for refinancing once you have paid 60% of the financing amount.
Corporate financing is a critical component of any business strategy. It involves managing resources to achieve the company’s goals and ensure its long-term stability.
Choosing the best financing option for your business requires careful consideration of your financing needs, creditworthiness, costs and risks associated with each option.
By following the steps in this guide and making informed financial decisions, companies can effectively manage their finances to reach their goals and achieve long-term success.
Ready to find the best financing for your organization? Find out how Al Raedah can help. Apply now.