This problem is not unique to higher education, however. In fact, the business world has already solved it. What do you do?
One option is to head over to the bank and take out a loan. This is basically the model we currently use to finance higher education: Students take out loans to pay for their tuition and upfront expenses, and then repay their debt with the earnings afforded to them by having a degree.
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But what if you have a really big idea—one that has the potential to be a blockbuster… or a total flop? You put a share of your future profits on the table in exchange for reducing your downside risk and eliminating the chance of your own financial ruin.
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Some colleges are getting on board with this idea. A small number of traditional colleges and a growing number of innovative training programs now give their students the option of financing all or part of their educational expenses with equity, using what is known as an income share agreement ISA. ISAs allow students to trade a small share of their future earnings for cash to cover up-front enrollment costs.
What Are The Repayment Options In Short Term Finance?
Rather than using capital from investors to start a business, students invest in their future career using funds provided by the ISA to pay for the cost of enrollment in college. In exchange, the student will share the return on this investment with the investors who made it possible by remitting an agreed-upon fraction of their earnings for a set number of years. This model has the potential to revolutionize higher-education finance. When ISAs are administered by colleges, they align the incentives of the institution with those of the student.
The school only gets paid if the student succeeds. Businesses, on the other hand, operate in a practical environment where funds are always in short supply. Then how do businesses manage to procure such funds? They avail a short-term loan for their requirements. Short-term business loans provide the much-needed business finance of a short-term nature. These loans help the businesses to meet their working capital requirements easily.
So, whether a business faces a surge in demand or a slump in sale, short term loan provides the funds required to keep the business operations going. Short-term finance has various benefits and advantages which is why these loans are a preferable choice for almost all businesses. These loans provide the following benefits:. Among the other benefits, the flexible repayment options provided by short-term loans hold better attractions for the businesses.
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They enable the businesses to pay off the loans with utmost flexibility which does not put a strain on the regular cash-flow of businesses. So, what are such repayment options?
Listed below is the repayment options available to pay off short-term finance availed by businesses:. Under this option, the principal amount of the loan along with the interest component is included in one instalment which is payable every month. The EMI option of the loan repayment also has other flexible variants such as:.
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The effect is that the loan is repaid quicker and the interest outgo is reduced. This plan of repayment is suitable for those businesses that expect a favourable revenue cycle in the near future as that would enable them to pay off the surged EMIs and reduce their loan burden. The borrower pays a larger part of the loan principal at the onset and then the instalments reduce over time.
Accelerated EMIs — Under this option, businesses are allowed complete flexibility in their instalment payments. If they have a surge in their cash-flow they can make an accelerated instalment payment.