The main objective of the research is to find the suitable ways in which the credit can be obtained and it can be managed efficiently across the globe. Also, the paper will investigate the importance...

Use & Management of Credit 1
Use & Management
Course Name:
Course Code:
Student Registration Number:
Supervisor’s Name:
Use & Management of Credit 2

Introduction
The main objective of the research is to find the suitable ways in which the credit can be
obtained and it can be managed efficiently across the globe. In present times, it is very difficult
to obtain the credit because of the depleting economic resources. This has been done with the
relevance of the notion that how have the credit benefited the modern world today.
The purpose of the research is to investigate the significance of credit in the global economy.
Considering the euro crisis, the credit needs to be carefully analyzed because excessive use of
credit was the main reason behind euro crisis. The work is sequentially arranged commencing
with the description of the scope of study and concluding by suggesting new insights for further
research direction. However, the main purpose of this part is to give the reader with a synopsis of
the major sections as they emerge. Specifically, it is an overview of what is to be expected in the
rest of the study so as to enhance and provide a detailed guidance. The paper is planned in two
parts, from the point of view of individual & company and second part of paper deals with the
role of credit in the economy.
The aims and objectives of the research are as follows:
 What is the s of the credit in global economy?
 How the credit be carefully managed?
 How the credit can lead in the growth of economy rather than fall of the
economy?
Generally, there are two methods of financing any new investment or expanding the current
operations. These can be classified into debt financing or taking credit and equity financing. The
company begins the investment with the funds contributed by their friends, family and people
close to the company. They provide the funds in exchange of ownership in the form of stock.
Use & Management of Credit 3

These shares are called as common stock and represent the owner’s capital. It is the most
commonly used way of raising funds for growth and expansion. The expansion of business or in
depth research and development program can be financed by taking debt or credit also. The debt
or the credit can be defined as the funds obtained from the outside sources like creditors, lenders,
banks, issue of bonds, debentures etc. which grants loan in lieu of regular interest payments. The
bonds are generally source of long term financing and it is not needed to be repaid earlier.
The term credit is used in negative sense, but the startup companies use the debt to finance their
operations. The balance sheets of financially strong companies also involve some proportion of
debt or credit. It is also known as leverage. Bank is regarded as the most common and easy
source of credit. But the credit can also be taken from private company or a family member. The
option of credit funding is not available to few companies pertaining to few specific sectors. For
example, startup technology companies as they don’t have any assets to offer as collaterals. In
case of technology sector, there is no asset base that can be securitized as most of the firms
operate through rented premises. The only asset available with them is hardware. Thus, the
option of credit funding is not open for these firms.
Forms of Debt / Credit Financing
The credit financing can also be divided between short term financing and long term financing.
1. Short Term Financing: Short Term finances are generally obtained to meet the
day to day operating requirements. It can be purchase of inventory, supplies, payment of
wages etc. It is also called as operating loan because the payment is required to be made
in a years’ time. The short term financing includes the bank overdraft, notes payable, line
of credit etc.
Use & Management of Credit 4

2. Long Term Financing: The long term financing generally applies to the assets
purchased by the business such as land and building, machinery, equipment etc. The
duration of loan is more than one year. The long term financing includes the bank loan,
loan from financial institution, issue of bonds, debentures etc.
Advantages of Debt / Credit Financing
The credit financing is regarded as favorable method of financing by different companies
because of the various benefits which it provides. These are listed as follows:
1. Maintain Ownership: The main benefit of issuance of bonds or taking credit is
that the business can raise the money without any change in the ownership. The
advantage...