Any company needs to invest for its creation of its new development activity. That is to say, new development activity means of production. Besides the flow of funds of its own source, the use of bank loans is the most commonly used practice.
To production every firm need raw materials, labor, and also a variety of equipment like Land, buildings, manufacturing equipment, etc.. ; All these devices are called the production tool.
Whether for the creation or for development needs every company needs to invest. Once established, they will allow the company to produce more or better conditions, which will enable it to generate additional profits.
A company can finance its investments from internal funds, without recourse to external capital. This solution has the advantage for the company to play independent, but it has the disadvantage of limiting the company in its investment opportunities and the expansion of the company.
Therefore, the use of bank loans is the most commonly used practice because it is easy and possible way for almost all small and medium enterprises. However, we must recognize that this funding has disadvantages for the business. It makes the company dependent on the varieties of the distribution of credit (i.e. amount, cost, time, etc.) And the policy adopted by its banker that is choice of risk guarantees, etc. Among the solutions offered by banks, there is the classic credit medium or long term.