as business internal sources of finance

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trade credit

Trade credit: the period of time allowed by a business after supplying another business with goods or services before payment is due.

Evaluation:

 No interest to pay

 Short term solution

 If payment is delayed for too long supplier may cut of credit

Best for:

Short term cash flow problems

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overdraft

Overdraft: a facility from the bank that allows a business to spend more than it has its account up to an agreed limit  

Evaluation:

Flexible- only pay interest on amount borrowed for as long as overdraft is needed

 Higher interest rates then a loan

 Not suitable for long term problems or large amounts

Best for:

Short term cash flow problems 

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leasing

Leasing: a long term rental agreement that allows business to use assets without having to pay for them

Evaluation:

  • Assets obtained without large expenditure
  • Often may include maintenance and new models regally updated
  • More expensive then buying outright in the long term
  • Asset never yours
  • Interest paid- regular monthly payments

Best for:

  • Items such as vehicles
  • Medium term finance 
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hire purchase

Similar to leasing except at the end of the agreement the asset becomes property of the business

Evaluation:

Asset obtained without large expenditure

More expensive then buying outright- long term

Interest paid regular monthly payments  

 Best for:

Items such as machinery/ vehicles medium term finance 

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loan

The use of some one else’s money for a period of time

evaluation

Fixed sum available- easy to plan for fixed repayments

Interest paid

Regular payments must be made regardless of cash flow  

best for

Medium term finance/expansion 

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venture capital

Funding provided by specialist firms or individuals in return for a proportion of the company shares

Evaluation:

Immediate cash injection

Give up shares of your business- loss of control for owner

May charge hire interest rates?  

Best for:

Often obtainable by business deemed too risky for other business 

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share capital

Finance raised by selling shares in the company

Evaluation:

Immediate cash injection

Does not need repayment

Loss of control/share profits

Best for:

Long-term or large expansions

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debenture

Debenture: a long term loan often secured on the companies property- the business equivalent of a mortgage

Evaluation:

  • Immediate sum
  • Cash repayments spared over a long time
  • Interest rates can be lower
  • Secured against property
  • Regular payments must be made regardless of cash flow

Best for:

Very long term- large expansions 

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