Sources of Finance

• Owners Funds - (Short Term, Internal)

  • Money is put into the business by its owners
  • Pro:
  • Don't have to pay interest
  • Con:
  • Could have been invested into a more profitable scheme
• Retained Profit (Long Term, Internal)

  • Profit made up by the business in earlier years
  • Pro:
  • Don't have to pay interest
  • Con:
  • Only available to firms that are successful
• Sale of Assets (Short Term, Internal)

  • Selling buildings or assets then leasing it back
  • Pro:
  • You don't need to take out loans
  • Con:
  • You might sell an asset that you need later
• Family & Friends (Short Term, External)

  • Money put into the business by friends/family
  • Pro:
  • Usually you don't need to take out loans
  • Con:
  • Could have been invested into a more profitable scheme
• Bank Overdraft (Short Term, External)

  • Flexible loans which businesses can use
  • Pro:
  • It is very flexible and fast to arrange
  • Con:
  • Have to pay interest
• Bank Loan (Long Term, External)

  • Banks give a business a large sum of money in return for them to pay back
  • Pro:
  • Large amounts can be borrowed
  • Con:
  • Have to pay interest
• Trade Credit (Short Term, Internal)

  • A period of time suppliers allow customers before payments for supplies to be made (buy now, pay later)
  • Pro:
  • Don't have to pay interest
  • Con:
  • Only relatively small sums of money can be made
• Hire Purchase (Long Term, External)

  • Leasing or renting equipment or cars
  • Pro:
  • Short term is cheaper as the cost is spread
  • Con:
  • Long term is expensive
• Government Grants (Long Term, External)

  • Money given to a business by the government used to help finance new start up companies
  • Pro:
  • No need to repay the grant
  • Con:
  • May be restrictions on what the money can be used for
• Share Issue (Long Term, External)

  • A share in the PLC/LTD sold to an individual or another business, cash is generated from the business from the sale
  • Pro:
  • No need to repay the money invested
  • Con:
  • Need to pay the shareholders a share of dividend
• Mortgage (Long Term, External)

  • Loans from banks and building societies that are used to buy land and buildings
  • Pro:
  • Repayments are spread over 20-30 years
  • Con:
  • If you don't pay it back, they take the building off you