methods of finance

• Methods of finance:

  • loans
  • overdrafts
  • Share Capital
  • Venture Capital
  • leasing
  • trade credit
  • grants
• Share capital = Finance raised from the sale of shares in a limited company

  • Shareholders are the owners of shares and they are entitled to a share of the company’s profit when dividends are declared
• Venture capital = Funds provided by specialist investors in small to medium-sized businesses that have significant potential for growth e.g. in the technology sector
• trade credit = An agreement is made with suppliers to buy raw materials, components and stock which are paid for at a later date, typically 30 to 90 days later
• Share capital

  Benefits:

  • Large amounts of capital can be raised, especially by public limited companies
  • Interest is not payable on finance raised in this way


  Drawbacks:

  • Shareholders usually have a vote at a company’s Annual General Meeting (AGM) where they can have a say in the composition of the Board of Directors
• Venture capital

  benefits:

  • Businesses that may have been refused finance from other sources may be able to attract investment from less risk-averse venture capitalists


  Drawbacks:

  • Venture capitalists usually require a stake in the business in return for finance and often expect to exert some control over the business
• Trade credit

  benefits:

  • Trade credit is usually interest-free


  Drawbacks:

  • Discounts for early payment will not be available