1.3.18 Sources of Small Business Fincance

• Get through periods when cash flow is poor for seasonal reasons.
• Bridge gaps when large customers delay payment, leaving no cash coming in to pay the bills.
• Provide the extra cash needed when a sudden, rush order requires a large sum to buy raw materials and pay overtime wages.

Bank Overdraft:

• The most common form of finance.
• The bank grants the business an ovedraft facility.
• Key features of a bank overdraft are:
  • Variable interest rate
  • Flexibility
  • The bank can demand full repayment of an overdraft within 24 hours.

Trade Credit:

• Small firms rely highly on good relationships with their suppliers.
• For small start-ups, it is often impossible to obtain credit at the start.

• Provide start-up capital to finance the business for its whole life span.
• Finance the purchase of assets with a long life, such as property and buildings.
• Provide capital for expoansion, such as building a new, bigger factory or buying up another business.

Personal Savings

• The owners own money.

Share Capital:

• Raising money by selling part ownership of the business.

Venture Capital:

• A combination of share capital and loan capital.
• Provided by an investor willing to take a chance on the success of a small to medium-sized business.

Retained Profit:

• Profit kept within the business.

Crowd Funding:

• Raising capital online from many small investors.