Methods of Finance
- Created by: Izzie
- Created on: 02-05-17 10:19
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- Methods of Finance
- Loans
- May be secured against an asset & if default on repayment asset can be taken
- Financial institutions can vary interest
- Suitable for long term projects
- A set amount of money provided for a specific purpose, to be repaid with interest, over a set period of time
- Share Capital
- Finance raised from the sale of shares. This is a form of equity capital
- Shareholders rewarded for investment by payment of dividends and may benefit from an increase in share price leading to increase value of their shares
- Only an option for incorporated businesses (e.g. Ltds, Plcs)
- Only an option for raising large amounts of finance to fund long term projects
- Venture Capital
- Investment from established businesses into another business in return for a percentage equity in the business
- Venture capitalists look for high rates of return in a specific time period
- Venture capitalist can share their expertise
- Often associated with high risk start ups
- Overdrafts
- Is the facility to overspend on a current account up to an agreed sum
- Interest is charged
- Good short term source of finance
- Leasing
- Allows a business to benefit from use of an asset without owning it or buying it outright (Renting)
- You pay a set amount in instalments to lease the asset
- Can be costly in the long run
- Trade Credit
- Paying suppliers a period of time after the good/service have been received
- Business may lose out on discounts offered for immediate or quick payment increasing costs
- E.G. 30 days TC, 35 days payment terms, 5 days extra!
- Grants
- Fixed amounts of capital provided to a business by the govt. or other organisation to fund specific projects
- Often have conditions attached to it (e.g. for good cause, provide employment, in area of high deprivation etc.)
- Loans
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