Borrowed funds - concept and meaning

Fruitful financial activity of any enterprise is almost impossible without borrowing from outside. Borrowed funds allow to significantly expand the scope of the main activity of the entity, accelerate the formation of the necessary financial funds, provide more profitable use of financial means of their own, and, as a result, increase the liquidity and financial value of the enterprise. So it's a fact that the concept of money is not applied to the Treasury cards of the Central Bank of Russia, which are familiar to us, but to non-cash monetary sources, including settlement accounts and funds from credit institutions.

Ideally, the basis of an economic entity should be its own funds, but the practice in our country shows that, for the most part, the basis is borrowed. That is why the market of borrowed funds is the most important aspect of the financial and economic activities of the enterprise. It is aimed at achieving a high final result of the activity.

By definition, borrowed funds are cash received for a specified period and subject to refund with a certain amount of interest for their use. This can be loans from banks and other credit institutions, as well as from the state, funds received from the issuance of valuable debt securities (bonds). Mobilization of borrowed funds is carried out in several ways, the main of which are public financing, the attraction of credit resources, the mobilization of capital through securities. The money received by issuing and localizing securities is the main source of investment.

Borrowed funds can be attracted in the following forms:

- in national currency;

- in foreign currency;

- in the form of goods (delivery of materials with a specified deferral of payment);

- Lease (use in productive activities of fixed assets that are not owned by the subject on a fee basis);

- other forms (use of intangible assets on a rental basis, etc.).

The choice of using any of the forms of borrowing is performed by the enterprise independently, proceeding from the specifics of the main activity, as well as the purpose of attraction.

Proceeding from the foregoing, it follows that the main creditors for business entities may be commercial and state banking structures, as well as other organizations engaged in the issuance of cash at interest, buyers and suppliers of products, as well as the stock market acting as the issuer of securities.

An important nuance in the crediting of the enterprise is that borrowed funds, no matter how much and in what form they are involved, should be provided by the organization's own assets. Especially this applies to those funds that are attracted in money terms. Borrowed funds are mandatory provided by the most liquid assets.

Another feature relates to a loan agreement concluded between a lender and a borrower. The fact is that all obligations in the document concern only the borrower - safety of material assets, timely return of interest and principal debt, etc. The lender reserves the right to demand fulfillment of all the terms of the contract.

Despite all the shortcomings and difficulties with attracting borrowed funds into financial activities, enterprises, especially those developing, will not be able to do without them.