Loans and Investments.

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A loan is an agent lending funds to another agent. This money can be used for investment spending, or it can be used for personal consumption expenditures. It can be used to buy fixed assets like real estate, which may or may not be “investment” depending on how you use the terminology. 

Investment is an expenditure which will yield revenue in the future, and hopefully amortise itself through that revenue. In the case of a household, investment can take the form of acquiring financial assets; in the case of an economy, investment often refers to actions which improve the country’s productivity. 

Is it a great deal to start a business or make an investment? no it isn’t starting a business with loans can be very disastrous especially when things go wrong or when your experience is on the upcoming level, like when you are just starting out.

It’s best you start things with your personal savings or if you don’t have enough you can talk too friends and family or even church members.

If it’s a partnership, a capital contribution is usually required. A lender will want to see that you have some of your cash as a stake in the business. 

Differentiating between investments and loans.

1. Investment is one among Basics of Finance. It means, if anybody can ask about the fundamentals of finance, you have got to inform investment is one among basics of finance. however loan is supply of finance. If we have not cash or fixed asset, we will finance it through getting loan from banking and money establishments.

2. Accounting treatment of investment is completely different from accounting treatment of loan. Suppose, you have got your personal written agreement business. You bring your capital in business and once this you have got started to earn cash through dividend . For this, you have got bought 5000 shares of XYZ company.This is your investment in shares and it’ll head to balance sheet asset facet. however if you have got not sufficient cash to buy the 5000 shares and you’re taking some cash from other party on interest. That due amount are your loan and it’ll be shown as liability in balance sheet. Sometime, you’ll provide loan to alternative. Basically, it’s your investment. But, you’ll show it in Loan and Advance as asset.

3. On the basis of difference between investment and loan, board of directors are playing the game in business on equity. you have got read in financial management, that it’s the duty of management to get loan at low cost rate, lower risk and management and risk and invest it at higher profit at lower risk. What did you get plan once reading plan. I actually have just one plan. Loan is power of business for taking the challenge to get high yield on same amount invested in the other project.

4. Loan is affected from market interest rates and value of debt however investment decision is affected large number of things like capital budgeting, investment analysis, project coming up with, real choice analysis and capital asset pricing model.

5. Area of investment is additionally over space of loan. Dealing of loan is simply limited to financial institution who do that duty professionally however area of investment include investment in every and each market, like investment in commodity market, investment in assets, investment in capital market, investment in exchange market, investment in insurance market, investment in private equity.

Author: Austine