1.3.18 Sources of Small Business Fincance


Uses of Short-Term Finance

  • 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.
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Sources of Short-Term Finance

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.
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Uses of Long-Term Finance

  • 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.
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Sources of Long-Term Finance

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.
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