Lithuania-based Debitum, which offers borderless small business financing, notes that many people are now beginning to understand that making smart investments can be a good way save money for later or for making bigger purchases.
However, Debitum claims that companies or businesses “rarely” think about investing their surplus funds or assets. The alternative investment platform suggests that the funds accumulated by firms should be allocated in an effective manner.
Debitum writes in a blog post that businesses have to take loans at times, and there is also a time to start saving. When companies are in need of funds for investment initiatives or further development, many of them might approach a bank or other traditional financing institution.
But companies may also want to consider the “right” investment products that match their risk profile or requirements.
As noted by Debitum, platform investment data and discussions with clients reveal that dividends “comprise a large part of the invested funds.” This means that “following the shareholders’ decision to pay dividends, the income tax at the rate of 15% was paid and the amount which could have been invested got reduced.”
“According to experts, instead of paying dividends, shareholders could accumulate this money and later invest it on behalf of the company. This would allow paying less taxes. While the investor would still have to pay a profit tax applicable to their investment, this would be a considerably smaller amount, compared to the income tax applicable to the entire value of dividends.”
Debitum noted that there’s also the case where the owner of a company might have to invest the funds received from the dividends back into the business. This may be due to changes in the market situation, like the COVID-19 pandemic and the resulting challenges.
As explained by the Debitum, this means that “the money is lost, not to mention all the additional procedures that could have been otherwise avoided.” The alternative investment platform added that “first, income tax is collected upon the payment of dividends” and “then, the articles of association of the company must be amended to allow the reinvestment of the dividends and the decision regarding the increase of the company’s capital must be registered at the Center of Registers.”
As explained by Debitum, “risk” and “liquidity” are important considerations when making investments. These indicators are “important no matter where and when one is making an investment,” but in the case of companies, the risks “should be assessed much more carefully,” Debitum recommends.
The company adds:
“Investors should take the peak seasons of the company’s operations into account (perhaps, certain periods require more funds invested into everyday operations) and to carefully assess the estimated income and expenses.”
Debitum further notes:
“When planning investments, companies should employ more rigorous strategies, choose short-term investments and safer projects. Alternative investment platforms could be a good choice for investments as they allow choosing projects of varied duration, ranging from 2 weeks to 2–3 months or even longer, and different risk profile loans. Forecasts of estimated return on investment are also available, which is impossible in the stock exchange.”
The Debitum team also mentions that investment platforms do have their “variables.” Investors are able to use special tools which can be controlled to a certain extent, like the risk level, “desired return on investment” or “additional security parameters, such as choosing loans with a buyback guarantee.”
According to Debitum, the important thing to do is to select a platform that offers “transparent” information regarding its activities and has “reliable credit risk assessments.” For instance, the credit risk assessments for the Debitum platform are “carried out by a reliable third party, e.g., Scorify in Lithuania or other assessors in other countries,” the company claims. This offers “more trustworthiness compared to risk assessments by platform representatives,” Debitum noted.
Alternative investment platforms provide investments in many different types of loans, but for companies, business projects are the best option, Debitum suggests.
The alternative investment platform further noted:
“Companies should invest either in business loans which carry less risks or into loans secured with real estate. The decision to offer investments into loans [via] Debitum … [should be taken while considering that] the bad debt portfolio on the … platform is surprisingly small [and] the liquidity is one of the highest in the market. Those who prefer short-term investments have a lot to choose from.”
“Next to the choice of loans on the platform, the way the platform managers present information is yet another important factor. When making investments on behalf of a company, the available information on investment increase, taxes, etc. must be accurate for it will have to be entered into the company’s financial statements and all the numbers must be correct both in the accounts of the investment platform and the investing company.”
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