BU3019c Enterprise Finance Essay Example | Topics and Well Written Essays - 1250 words

BU3019c Enterprise Finance - Essay Example No matter the size of the business, big or small, banks can be the solution to financing. A bank can also finance a project based on the business needs. For instance, if a large successful business needed a new warehouse, a bank might advance cash. Big business generally have banks issue stocks or bonds on the market to raise money for their loans. This can generate money, but if the bank or stock fails, the results are disaster. For example, Northern Rocks Share price crashed after credit freezes in the interbank money market. Walayat (2007) explains: Northern Rocks Share price crashed by 30% today as the mortgage bank sought emergency funds from the Bank of England due to the credit freeze in the interbank money market which Northern Rock heavily relies upon. Panic gripped savers forming long lines outside Northern Rock Branches throughout the UK to withdraw funds. Investors dumping the stock on the market open where even unsubstantiated rumors of takeovers and white knights failed to halt the crash in the banks share price. The tick chart for the Northern Rock bank decline is shown below: The drawbacks for bank loans are two fold. First, most banks require collateral. If a party defaults on a bank loan, the bank will foreclose. Secondly, a business must have good credit. Without almost perfect credit, banks will not even consider giving a business a loan. The upside is most banks have lower interest rates than other means of investment. For example, (Simple Pound, 2007) reports that The Bank of England has a 5.5% interest rate. This is quite low considering credit cards charge up to three times that figure. The chart below shows the highs and lows in interest rate at The Bank of England over the years. Investments can be used in various ways to finance a business (Loeb, 2007, 10). An international corporation, such as Microsoft, can sell stocks to generate financing for their