Sources of finance Flashcards
(12 cards)
Retained profit
+ A free source of finance that does not incur interest
- Shareholders may wish to receive it back in the form of a dividend.
Sale of assets
+ Frees up value in unwanted assets to be invested in other areas of the business.
- The business loses the benefit of the asset, for example no longer owning a delivery vehicle.
Owners capital (personal savings)
+ A free source of finance that does not incur interest
- Owners could lose their personal investment.
Overdrafts
+ A flexible way to fund working capital, acts as a buffer fro day-to-day expenses
- Bank may ask for repayment at any time and interest rates are high.
Trade credit
+ Suitable for buying raw materials from suppliers as it gives the business the opportunity to generate revenue before having to pay
- Delays in payments, damages relationships between suppliers & the business
Grants
+ Government schemes may be available to small businesses
- Generally given for social, environmental and economic benefits
Leasing
+ Assets can be acquired without large capital spending to acquire them
- In LT a leased asset is more £ than purchasing it upfront
Bank Loan
+ Can be negotiated to meet business requirements
- Business must pay interest & may offer collateral to secure it
Venture capital
+ Can bring expertise into the business
- Owner may not want input from elsewhere into the running of the business.
Share capital
+ Can access very large amount of capital and no interest
- Only available to LTD (people you know) and PLC (public)
Crowd Funding
+ Cheap and easy to set up
- Not suitable for raising large amounts of money
Factors to consider in financing resources
- Legal structure as some sources are only available to certain structures
- Cost, some have high interest rates
- Risk, some require collateral
- Flexibility, some are highly adaptable to meet requirements
