what are the Positive and Negative impact of financial institutions on business?
Answers
Answer:
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Explanation:
Financial institutions impact businesses in many ways, directly and indirectly. Many startup companies approach banks for loans to start a business and pay premiums to insurance companies in order to avoid uncertainties.
Financial Institutions are doing business by themselves. If you are dependent on them, you are supposed to follow their dictations. The more you depend on them, the more the impact.
The Advantages of raising funds through financial institutions are as follows:
Here, finance is accessible even during periods of depression, when no other foundation of finance is accessible in the market. New companies which may find it hard to elevate finance from the public can get it from these institutions.
(i) As these institutions carry out a systematic investigation before conceding support to an apprehension, relationship with them helps to increase the credit-worthiness of a company.
(ii) Besides providing funds, many of these institutions endow with financial, administrative and industrial guidance and consultancy to business firms. Assistance is obtainable when recourse to usual sources is impossible or unbeneficial.
(iii) Financial institutions provide long-term finance, which is not provided by commercial banks;
(iv) The rate of interest and repayment measures is convenient and economical. Facilities for repayment in simple installments are made obtainable to the deserving concerns.
(v) For long-term business funds requirements, financial institutions are preferable as they provide long-term finance, which is not provided by commercial banks. Modernization and development plans can be financed without much strain on the financial organization of the company.
(vi) Besides providing funds, many of these institutions provide financial, managerial and technical advice and consultancy to business firms;
(vii) Obtaining a loan from financial institutions increases the goodwill of the borrowing company in the capital market. Consequently, such a company can raise funds easily from other sources as well.
(viii) As repayment of loan can be made in easy installments, it does not prove to be much of a burden on the business;
(ix) Loans and guarantees in foreign currency and deferred payment facilities are obtainable for the import of required technology and equipment.
(x) Along with finance, a company can obtain specialist guidance and direction for the successful planning and management of projects.
(xi) The funds are made available even during periods of depression when other sources of finance are not available.
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