Business Studies: Raising Finances

Some notes on different methods of how businesses can raise finance.

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  • Created by: izzy
  • Created on: 29-06-12 15:41

Internal Finance - Short Term.

  • Cash in bank.
  • Buying less stock to save money.
  • Chase up debters (those who owe money).
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Internal Finance - Medium / Long Term.

  • Retained profit.
    • Using profit from previous years to expand the business.
  • Sale of Assets.
    • Selling off buildings and machines that are no longer needed.
  • The owner puts in more money.
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External Finance - Short Term.

  • Overdraft.
    • The firm arranges with the bank to take more money from it's account than it usually does.
    • There's usually a time limit and and the firm has to pay interest.
  • Trade Credit.
    • A firm buys stock and supplies and is given 30 - 90 days to pay.
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External Finance - Medium Term.

  • Bank Loan
    • Money borrowed for a certain time period and purpose.
    • The bank will usually want security.
    • Interest has to be paid.
    • Loans are usually paid back bit by bit over time.
  • Leasing (renting).
    • Renting instead of buying equipment.
  • Venture Capitalists.
    • Very wealthy firms that invest in high risk but high reward firms.
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External Finance - Medium Term 2.

  • Business Angels.
    • Very wealthy individuals invest in high risk but high reward firms that they like.
  • Hire Purchase.
    • Buying equipment in stages using monthly payments.
    • The equipment is yours when you make the final payment.
  • Grants.
    • Uncommen but useful - money is given to help people start businesses.
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External Finance - Long Term.

  • Issuing Shares.
    • Can only be done by Ltds and plcs.
    • Can raise a lot of money.
  • Mortgage.
    • Long term loan to buy property.
    • Paid back over time with interest.
  • Debenture.
    • Like a bank loan but not from the bank.
    • You pay interest each year but don't pay the whole thing back  until the end of 5 or 10 years.
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