Sources of Finance

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  • Sources of Finance
    • External
      • Bank overdraft involves withdrawing more from the bank account than is in it but has high interest
      • Trade credit is when items are bought from suppliers on a buy now pay later basis with zero interest.
      • Hire purchase involves items being paid for in monthly installments
      • Leasing is used to help obtain new equipment, it is similar to renting the item
      • Bank loan is when money is borrowed from the bank and then paid back over a set period of time
      • Mortgages are long term loans provided by the bank in order to buy property
      • Debentures are long term borrows repaid at the end of a fixed period usually for a fixed amount of interest
      • Share issue is a share in the business is sold to an individual or another business and this money can then be used to purchase new assets
      • Government grants give money to the business to help finance new projects. These are very rare.
      • Debt factoring involves selling debt to another firm for a smaller sum than is owed
    • Internal
      • Selling assets and the money made is used to finance the business.
      • retained profit is money kept in the business by the owner and is easy, as long as the business is profitable
      • Personal savings are the owner's funds put into the business.


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