Bank Based Financing Vs Market Based Financing..

Looking for a loan.?? Invested in share markets.?? Wanna borrow from non-banks.??  Totally confused about your investment.?? Well..here are the perfect answers to all the confusing questions..

Whenever we need to purchase land/building/house/machinery etc.. immediately we approach bankers.. Because banks do provide long term loans with less interest rates.. Of course, they collect double the loan amount value..This is another issue which is related to their profits.. Besides this, banks act as credit mediators among all the customers of the bank.. Providing credit to needy ones of the bank from the investors of the bank is known as "Bank Based Financing"

There is another type of financing, known as  "Market Based Financing" which is mainly based on capital funding from the lenders & equity holders(Sole proprietors of the company) to invest in a business on a daily basis/ long term basis.. These lenders & equity holders expect a return on investment(ROI) in the form of interest, stock appreciation(increase the value of the stock), Dividends (Sharing its profits annually to the share holders). 

This can be easily explained in the following manner.. Let us say, you are interested to start a company and you require money..For this purpose you are not interested to approach the bank because of its interest rates.. Now you have approached capital funding banks and explained the total value of your project.. Lenders and equity holders assist you financially you need for.. But in return, they expect a share from your company (or) they expect interest for their investment (or) they may expect a stock appreciation from you..

This kind of mutual investment helps you to grow financially with less investment but the investor should be aware of risks involved like trustworthy issues, losses of the company,etc..

The actual question now is which is better for financing ?? This is totally dependent on the firms.. Market-based financing is helpful for corporates & the bank based financing is always a helping hand to all categories of the society.. The countries which have stability in stock markets are mostly dependent on the Market -based financing.. The countries which have volatility nature in their stock market can approach for Bank Based financing.. 

Whatever the financing may be, one should be well-versed with risk management skill, stability even in odd situations and good leadership is required to run one's business with long term profits..In the end, everyone wants to make their own profits so, follow a better way that suits you and reach much more heights..