AS Business: Sources of finance

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  • Created on: 20-03-13 22:56
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Sources of Finance Advantages Disadvantages
Owners Savings: Cheap & readily available. A sole trader usually has unlimited liability, therefor
When the owner uses his own savings to invest in Maximises the control the entrepreneur keeps over the the owners do not raise sufficient funds, they could
the business. Usually a sole trader. Long Term. business. become personally bankrupt.
Strong signal of commitment to outside investors or
Sale of Assets: Releases money. If the asset is needed, it may be Has an effect of the potential capacity of the busine
When a business sells off fixed and current assets possible to sell it, but immediately lease it back. In this the amount it can produce.
which it no longer needs in order to raise finance way the business has use of the money and asset Assets are no longer available.
for new projects. (sale and leaseback)
Retained Profit: Important source of long term finance as it does not May be limited so will constrain the rate of business
Profit kept after all expenses and dividends are paid need to be paid back. expansion.
out. The profit left can be `ploughed back' into the
business for expansion purposes. It belongs to the
Overdraft: Flexible source of income, excellent for helping a The amount of interest paid is usually higher than a
Short term source of finance where the bank business handle seasonal fluctuations in cash flow. loan so caution is needed when using an overdraft.
allows a business to go `overdrawn' up to an The bank can insist on being repaid within 24 hours.
agreed amount. Usually used to pay small bills and
Trade credit: Good way of boosting day-to-day finance. Difficult for sole traders to acquire in the early days,
When suppliers give time to pay for supplies and there needs to be a strong relationship with supplie
stock- usually within a 30 day payment period.
Short term.
Leasing: Avoids large cash flows when buying new assets. Expensive.

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When an asset is used by a business but never
owned by it. The business pays a monthly amount
to use the asset.
Hire Purchase: Spreads the cost of purchasing assets. Monthly payments can be expensive.
When an asset is bought over a period of time with Asset eventually becomes property of the firm.
repayment made each month until the final
payment when the item becomes the property of
the firm.
Bank Loan: Good for financing investment in fixed assets. Don't provide much flexibility.…read more

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Ltd to a plc and share can be traded on the stock accordance to their stake in the same and hence
market. possess certain degree of control over its operation.…read more


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