5.2 sources of finance

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  • Created on: 04-10-20 15:38
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  • 5.2 sources of finance
    • reasons businesses need finance
      • establishing a new business
      • funding expansion
      • marketing
      • running the business
      • recruitment
    • sources of finance
      • trade credit: a business sells goods after agreeing to pay for them at a later date.
        • adv: business can have goods before paying, no interest is paid on time, can help with cash flow problem.
        • disadv: goods must be paid for even if they don't sell, interest is charged is payment is late.
      • overdraft: a bank makes available to a business more money than they have in their account
        • adv: meets short term cash flow problem, interest only paid on amount owned, repayment is only due when business closes or overdraft isnt needed.
        • disadv: interest charged for every day money is owed which could be expensive.
      • taking on a new partner: the new partner invests some of their savings in the business
        • adv: new partner can bring new skills, no need to repay, no interest.
        • disadv: loss of ownership, partnerships can take on new partners
      • sale of assets: goods etc owned by the business are sold to raise money
        • adv: no need to repay, no interest to pay, good if selling off old stock, equipment.
        • disadv: may be difficult to sell, may take time to sell.
      • loan: a set amount of money, borrowed for a set period of time.
        • adv; repayment is made in fixed sums over a period of time usually monthly, the loan is available immediately after agreement.
        • disadv: interest must be paid, the business may need to give the lender security.
      • retained profit: money not distributed to the owners (shareholder) as profit
        • disadv: business might not have made profits, owners will not get profit as income.
        • adv: no need to repay, no interest to pay
      • share issue: new shares are sold to raise more money
        • disadv: owner loses ownership, shareholders have a say in everything, shares can only be sold by limited companies.
        • adv: ne investors can contribute alot, no need to repay, no interest to pay.
      • owners capitals: the owners savings are invested.
        • disadv: owner risks savings, owner may not have enough savings
        • adv: no need to repay, no interest to pay, doesn't affect ownership and control.
      • crowdfunding: money is donated or invested by sponsors or people invest to become part-owners of the business
        • adv: new supporters can contribute a lot of money to the business through loans, donations, no need to repay, no interest to pay.
        • disadv: interest will be paid if the money is raised through a loan, ownership will be shared if the money is raised through investment.
    • short term: owners capital, sale of assets , trade credit.
    • medium: owners capital, sale of assets, retained profit, bank loan, crowdfunding.
    • long term; owners capital, sale of assets, retained profit, bank loan, crowdfunding, partner, share issue.


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