"CREDIT MONITORING ARRANGEMENT" - A TOOL FOR EFFECTIVE CREDIT ASSESSMENT

Every business be it small or big needs funding to expand in its capacities in the form of plants, machinery, equipment, meeting working capital requirements, etc

- Arvind Mareedu

For fulfilling this purpose, a generally huge amount of investment is required. The investment may come from either internal or external sources. If the investment comes from internal sources, we call the source as capital or reserves or surplus profits are reinvested in the business.

On the other hand if the sources are external, they might be of two types i.e. Equity funding & Debt funding. While in debt financing capital is acquired through the borrowing of funds from financial institutions against a security to be repaid at a later date. In equity financing, rising of capital is by selling stocks to investors. While each method of funding comes with its fair share of pros &cons, Debt financing is a simpler and reliable method of funding for businesses through loans and credit, as it allows a business to use a small amount of money into a much larger sum enabling faster growth that otherwise might be possible. Whereas equity financing contains a large amount of time comparatively, complex paperwork, disclosures& legal arrangement. Hence borrowing from a lender or bank or NBFCs or even from a modern-day Fin-tech lending platform is convenient as they take pride in their ability to disburse a loan within a day or two.