A company can be faced with numerous problems that range from business barriers such as poor management, financial barriers, and regulatory barriers among others like competition. A financial barrier is a phenomenon where a company cannot buy or access resources since it does not have funds. Accessing finance is the key to the development of a business, particularly access to external financing.
Companies venturing in international trade are faced with financial barriers since they require money to finance international activities such as transportation, labor, warehousing and payment of customs. Companies are not able to secure international loans may be because the company may lack the capacity to handle international financing. Lending firms may also have a problem in having experience in handling international finance. Since many countries use different currencies it becomes difficult to obtain international loans due to the fluctuating nature of the currency exchange rates (Johnson, 2004). The lending firms also lack expertise in the valuation of international company’s eligibility for financing.
Excessive credit is likely to be a financial barrier to a company. A company that strongly transacts on credit terms both to its customers and its suppliers may be faced with cash problems. Excessive credit may make a company become bankrupt as a result of sinking into too much credit. Excessive credit causes a company to experience debt problems. Debt may attract fines thus making the company go into further financial crisis.
Government policies are one of the major causes of financial barriers. Government can impose laws and regulations that require companies to have more capital in order to secure creditors’ interest. This in turn places a company into a financial crisis of liquidity as it may concentrate on converting its reserves into equity. Government taxation policy may be a solution or a source of the financial barrier to a company. Government incentives to companies in order to encourage trade may include subsidies, reduction of tax rates among others (Childs, 2002).
Financial barriers are likely to be caused by uncertainty surrounding economic growth. A company has variations in the rates of growth, at times growth is high or low at other times the growth may be stagnating. The uncertainty in growth makes financing intuitions like banks take precautionary measures by declining the amount they can lead out to companies. The uncertainty in growth also affects a company’s cash flow. Companies experiencing unstable cash flow usually have a lot of financial difficulties when it comes to paying bills and obligations.
Small-sized companies are faced with financial barriers more than larger companies since they may lack the collateral required to secure loans and advances. These small companies may also lack the means of loan repayment thereby remaining in financial difficulties. Interest charged on loans may also be very high and in turn discouraging companies from taking loans and advances (Berman et al, 2006).
Finally, the solution to financial barriers could be through leasing property. By leasing property a company avoids paying lump sums which could put it into a financial crisis. Property leases can either be in two forms of leases. One where the lease period is less than the lifetime of the property and the other is where there is an agreement to purchase the property after the lease period is over. Another solution to financial barriers is proper management. A company’s management should be overhauled in order to exercise transparency and accountability. The company’s management team should be made up of professionals who have the knowledge and wit to effectively manage the company’s finances. Private arrangements can also be utilized by arranging for effective credit advancement between the company and private investors in private partnerships and private credit arrangements (Berman et al, 2006).
Reference list
Berman Karen, Knight Joe & Case John (2006). Financial intelligence: a manager’s guide to knowing what the numbers really mean. Boston: Harvard Business Press.
Childs, C. R. (2002). Financial barriers to the litigation process: the evolution of the indigent’s right to access the court system New York: S. N publisher.
Johnson, C. A. (2004). Blowback: the costs and consequences of American empire. Baltimore: Henry Holt.