Advantages and disadvantages of selected sources of finance

Created by: tiannahewitson1
Created on: 18-05-16 16:16


	Advantages and disadvantages of selected sources of finance
	Advantages Overdrafts: a flexible way of funding day to day requirements Interest is only payable on actual amount borrowed Debt factoring: allows businesses to receive cash almost immediately May reduce a business's overdraft Bank loans: can be negotiated Managers can plan for repayment Mortgages: ideal for long term products avoid the owner losing control over business Retained profits: free source of finance do not involve loss of control Share capital: Can be used to raise large amounts of capital Company not committed to fixed interest payments Venture capital: can bring expertise into the business avoids having to pay interest on the entire amount of finance Crowdfunding: can be relatively cheap increasing relevance as banks reduce short loan lending	Disadvantages Overdrafts: interest rates are high bank may ask for repayment at any time Debt factoring: Can reduce a businesses profit margin Customers could lose faith in suppliers Bank loans: They are inflexible May be required to offer collateral Mortgages: Managers will have to offer property as collateral They may have to pay interest Retained profits: the owners of the profits may want them The business may lose out on alternative investments Share capital: only available to companies existing owners may lose control Venture capital: may not want them involved in decisions usually only able to raise small amount of finance Crowdfunding: unfamiliar source may not be suitable to raise a lot of capital
	Evaluation The influences: 1. The business's legal structure2. The cost of the source of finance3. Flexibility4. Control5. The purpose for which the finance is needed

Advantages and disadvantages of selected sources of finance

Advantages

Overdrafts: a flexible way of funding day to day requirements
Interest is only payable on actual amount borrowed
Debt factoring: allows businesses to receive cash almost immediately
May reduce a business's overdraft
Bank loans: can be negotiated
Managers can plan for repayment
Mortgages: ideal for long term products
avoid the owner losing control over business
Retained profits: free source of finance
do not involve loss of control
Share capital: Can be used to raise large amounts of capital
Company not committed to fixed interest payments
Venture capital: can bring expertise into the business
avoids having to pay interest on the entire amount of finance
Crowdfunding: can be relatively cheap
increasing relevance as banks reduce short loan lending

Disadvantages

Overdrafts: interest rates are high
bank may ask for repayment at any time
Debt factoring: Can reduce a businesses profit margin
Customers could lose faith in suppliers
Bank loans: They are inflexible
May be required to offer collateral
Mortgages: Managers will have to offer property as collateral
They may have to pay interest
Retained profits: the owners of the profits may want them
The business may lose out on alternative investments
Share capital: only available to companies
existing owners may lose control
Venture capital: may not want them involved in decisions
usually only able to raise small amount of finance
Crowdfunding: unfamiliar source
may not be suitable to raise a lot of capital

Evaluation

The influences: 1. The business's legal structure2. The cost of the source of finance3. Flexibility4. Control5. The purpose for which the finance is needed

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Advantages and disadvantages of selected sources of finance

Advantages and disadvantages of selected sources of finance

Advantages

Disadvantages

Evaluation

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Advantages and disadvantages of selected sources of finance

Advantages

Disadvantages

Evaluation

Comments

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