sources of finances

• factors affecting source of finance chosen

  availability - small firms have little choice

  cost - what can they afford

  risk - suitable means less risk e.g repayments

  control -shares raise finance means less say in how its run
• ordinary shares - expect to receive annual dividend but not guaranteed doesn't have to be repaid e.g shareholders
• preference shares - pay a fixed annual amount to holder receive dividend before ordinary shareholders so less risk
• debentures - form of loan stock sold by companies to investors as finance, its long-term
• venture capital = small companies aren't listed on stock marker so specialist organisations lend money to SMEs
• factoring = involves business selling debts to factor company who gives 80% money owed to it by customers
• bank loan = when financial institution advances a set amount of money with agreement will be repaid with interest
• grants - provided by Gov/EU/agencies like princes trust, usually for small firms or area of unemployment
• overdraft = agreement between bank and business where bank allowed withdrawal or more money in their account
• mortgage = type of loan used to purchase property require monthly repayments, bank can take property if not paid on time
• leasing = when business has use of an asset in return for a monthly fee, business never owns it e.g cars, vans
• sale and leaseback - when business sells machinery and rehires them back to continue their use
• trade credit = business obtaining goods from another business but not paying instantly - gives time to generate money
• hire purchase - when business uses assets in return for monthly fee once money repaid belongs to company
• retained profit = profit made from previous years which remained after tax and after proportion was distributed to shareholders
• sale of fixed assets - like machinery vehicles or land which are idle and can be large sources of cash
• working capital - business take steps like chasing debtors for payment selling any stock and negotiating longer credit periods with suppliers
• personal finance - owner may have personal finance they are willing to invest can be from family/friends
• why do business need finance

  pay bills, buy stock, buy services, employ people, buy premises, pay interest on loans
• internal source of finance - funds obtained from sources within a business
• external sources of finance = funds obtained from sources outside the business
• short term = up to 12 months e.g overdrafts

  medium term = between 1-5 years e.g loans, retained profit

  long term = five years pr more e.g mortgages, share and venture capital