Business Finance

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  • Business Finance
    • The most suitable finance option for a business depends on many things
      • How much funding is needed
      • The amount of time the money is required for
      • What the finance will be used for
      • The affordability of the repayments
      • Whether or not personal or business assets are available as security
      • Whether or not the business owner is willing to give up a share of ownership
    • Internal sources of finance
      • Retained profit: as a business becomes more profitable, it makes sense to build up and retain some profits
      • Working capital: by reducing their trade credit period and collecting debts more efficiently, a business may receive money from customers more quickly
      • Sales of assets: established businesses are able to sell off assets that are no longer required, such as machinery and buildings
    • External sources of finance
      • Bank loans: a loan is borrowing a fixed amount, for a fixed period of time. Payments made up of interest and capital are made monthly
      • Overdrafts: an overdraft is the facility to withdraw more from an account than is in the bank account, resulting in a negative balance
      • Trade Credit: this is an interest free way to raise finance, businesses buy items and pay for them at a later date
      • Factoring: a method of turning invoices into cash, banks pay a proportion of the value of an invoice when issued, then when the invoice is paid the business receives the balance minus a fee
      • Leasing and hire purchase: methods of gaining the use of capital goods, whilst paying a monthly fee
      • Commercial mortgages: if a business owns property, the property is used as security against the loan
      • Share capital: a long term method of providing funds for growth is to sell shares
      • Venture capitalists: professional investors who can invest large amounts of capital into small and medium sized businesses
      • Government assistance: local and central government may offer finance to business start up schemes

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