sources of finance

• finance needed for...

  start up, running, expansion
• start up

  paying for premises, equipment, advertising
• running

  wages, suppliers
• expansion

  new branches
• finance influences

  purpose, objectives, amount required, type of business, length of time, interest rates, payback terms
• internal finance

  funds found inside the business
• methods of internal finance

  retained profit, sale of assets
• retained profit

  profit that has been made by the business in previous years then reinvested back into the company
• advantages of retained profit

  does not need to be repaid
• disadvantages of retained profit

  time consuming
• sale of assets

  when a business sells items they no longer need
• advantages of sale of assets


  does not need to be repaid
• disadvantages of sale of assets


  difficult, time consuming
• external finance

  funds found outside the business
• methods of external finance

  bank overdraft, bank loan, commercial mortgage, debt factoring, grant, share issue, debentures, crowdfunding, venture capital
• bank overdraft

  short term, facility that will allow you to withdraw more money from your account than is available
• advantages of bank overdraft

  arranged quickly
• disadvantages of bank overdraft

  high rate of daily interest charged, only available for small sums of money
• bank loan

  fixed amount of money given to a business by the bank that has to be repaid over time with interest in monthly instalments
• advantages of bank loan

  arranged quickly, can be repaid over a long period of time
• disadvantages of bank loan

  interest must be paid too
• commercial mortgage

  long term, sum of money borrowed from the bank secured against a business property and paid back with interest in instalments
• advantages of commercial mortgage

  long period of time, raised quickly
• disadvantages of commercial mortgage

  interest must be paid too, property can be lost if repayments are missed
• debt factoring


  short term, firms sell their invoices to a factor such as a bank
• advantages of debt factoring

  time saved as unpaid debts do not need to be recovered
• disadvantages of debt factoring

  money lost as unpaid debts are sold at a reduced value
• grant

  fixed amount of money awarded by the government given to a business on the condition that they meet certain criteria
• advantages of grant

  does not need to be paid back
• disadvantages of grant

  certain criteria must be met, time consuming to apply for a grant
• share issue

  when a business issues more shares in the company to obtain finance from their sale, only available to private or public limited companies
• advantages of share issue

  does not need to be paid back, large amounts can be raised
• disadvantages of share issue

  shareholders need to be paid a dividend annually, shareholders become part owners of the business
• debentures

  loans given to the business by individuals then paid back in full at an agreed date with annual interest
• advantages of debentures

  control of business is not lost
• disadvantages of debentures

  interest must be paid even if the company makes a loss
• crowdfunding

  getting small amounts of finance from a large amount of people through social media or crowdfunding websites
• advantages of crowdfunding

  access to a large amount of investor, quick
• disadvantages of crowdfunding

  public request for investment risks a competitor copying you, if target amount isn't reached then the business gets nothing and investments are returned
• venture capital

  money that investors provide to a company that is starting up or expanding, used when there is an element of risk with the business