Sources of Finance
- Created by: Holly_Donoghue01
- Created on: 12-04-19 12:10
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- Sources of finance 2
- External sources
- Overdraft + flexible way to fund working capital, acts as a buffer for day to day expenses - Bank may ask for repayment at any time and interest rates are high
- Trade credit + Suitable for buying raw materials from suppliers as it gives the business opportunity to generate revenue before having to pay - Delays in payment can damage relationships with suppliers
- Grants + Government schemes might be available for some small businesses - Generally given for social, environmental or economic benefits
- Leasing + Assets can be acquired without large capital spending to acquire them - In the long term a leased asset is more expensive than purchasing it outright
- Bank loans + Can be negotiated to meet business requirements - Business has to pay interest and may have to offer collateral to secure it
- Venture capital + Can bring expertise into the business - Owner may not want input from elsewhere into the running of the business
- Share capital + It can access very large amounts of capital and no interest - Only available to Ltd (people you know) Plc (public)
- Crowd funding + Cheap and easy to set up - Not suitable for raising large amounts of money
- Internal sources
- Retained profit + A free source of finance that does not incur interest - Shareholders may wish to receive it back in the form of a dividend
- Sale of asset + Frees up value in unwanted assets to be invested in other areas of the business - The business loses the benefit of the asset, e.g. no longer owning a delivery vehicle
- Owner's capital (personal savings) + A free source of finance that does not incur interest - Owners could lose their personal investment
- Factors to consider
- Legal structure - some sources, such as share capital, are only available to companies.
- Cost - some sources have very high interest repayments
- Risk - sources that require collateral can be high risk
- Flexibility - some sources are highly adaptable to meet the business's precise needs
- External sources
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