Sources of finance

• What is equity finance?

  Money raised by selling part of your company
• What is debt finance?

  Money borrowed and must be repaid
• What is the golden rule of finance sources?

  Match the source with the use
• What are the features of internal short-term finance from retained profits?

  • Easy to budget
  • No interest charges
  • Suitable for small businesses
• What are the disadvantages of using retained profits for internal short-term finance?

  Limited amount available and lack of control
• What are the features of internal long-term finance from savings and depreciation?

  • Low cost
  • Limited availability
  • Slow to generate funds
• What are the advantages of external short-term finance through loans and trade credit?

  Easy access and charges high interest rates
• What are the disadvantages of external short-term finance?

  High interest rates and security may be required
• What are the features of external long-term finance through loans and share capital?

  • Large amounts can be raised
  • Designed to meet the company's needs
  • High interest payments
  • Loss of control for original owners
  • Expensive to arrange
• What are the advantages of crowdfunding?

  Raising funds to build a business
• What is trade credit?

  Allows buying now and paying later
• What is a government start-up loan?

  Government provides a maximum loan amount
• What are the advantages of personal sources of finance?

  • No interest
  • Remains in full control
  • Easily accessible
• What are the disadvantages of personal sources of finance?

  • Higher personal risk
  • Can affect personal relationships
  • Guarantors may be required
• What are the advantages of external finance?

  • Access to large amounts of finance
  • Fast way to raise finance
  • Increases cash flow
• What are the disadvantages of external finance?

  • Interest costs
  • Late payment penalties
  • Limited access for new businesses
• What is the maximum amount for a government start-up loan?

  £25,000
• What is the repayment responsibility for borrowed funds?

  Responsible for any funds borrowed