Sources of Finance

A summary of the main sources of finance for growing businesses (Unit 2). Enjoy :)

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  • Created by: Rebecca
  • Created on: 25-05-11 14:30
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Sources of finance for a large business
Sources of finance are ways in which a business finds money
5 main sources of finance for a growing business
1. RETAINED PROFITS: Profit from earlier years kept by business. Revenue ­ costs (after dividends)
No interest- not borrowing money
Readily available, less time lag
Only available if firms have made a profit
Shareholders may be disappointed if profits are kept in business and not paid to
them as dividends.
2. SELLING ASSETS: Asset ­ something owned by a business, sell for cash or sale and lease back
No interest
Get rid of assets business do no longer need
May need asset for later use
If sale and lease back: never owned by the business, need to pay sum to money
regularly, decreases business' long term profits
Many business' do not have suitable assets
3. BANK LOAN ­ sum of money borrowed from banks repaid over a set period of time plus interest.
Can be arranged quickly, put plans to action a.s.a.p.
For larger business, lower interest rates because they represent less risk as they are
more financially secure
May want collateral
Interest needs to be paid
4. MORTGAGE: used to buy land and buildings, repaid over a certain amount of time plus interest.
lower interest rates
repayment is over a long period of time
5. SELLING SHARES
Not committed to pay interest
No need to repay
People may not be interested
Shareholders may take control of the business
Dividends need to be paid
Only available for plc and ltd.

Comments

Anisa -Team GR

Very useful!

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