The access that larger businesses have to financing is different from smaller businesses for several reasons. First, larger businesses have more assets. While those assets could be used as collateral, which is undeniably one large advantage, assets can also be sold in times of trouble. As such, a financier knows that a company with a large amount of assets could, if unable to make a payment, simply sell an asset to get the needed money. Second, larger companies tend to have a longer and larger business history. Any type of investment in business finance, such as lending a business money or buying stock in the company, is predicated on the history of the company and, based on that history, assumptions as to what the future performance of the company will be. The likelihood of those assumptions being correct is referred to as risk and the lower the risk, the better the terms to the company being invested in. Larger companies have larger histories and, so, have this advantage. Lastly, larger companies have reputations that are more established than those of most smaller companies. In this case the reputation alone can act as a sort of guarantee. For example, few people would disagree that stock in Coca-cola or Shell Oil is a bad investment--at least in the short term. The reason for this is that these companies have reputations strong enough that it would be difficult to imagine them not performing well. Smaller companies, such as Ron’s Home Improvement, largely do not have this benefit.
Apr 19th, 2015
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