Business Studies – Sources of Finance: Business Exam Tips #Finance

sources of Finance when choosing Finance for a business

it’s essential that it’s adequate for the needs of the business for example making sure that it’s actually enough to pay for what it is you need it’s also important that it’s appropriate and won’t leave the business with massive interest payments if it is already

burdened with other high monthly payments Finance can come from internal or external sources if it comes from internal sources it’s likely to come from three sources

retained Profits from previous years after all deductions sales of Assets such as machinery and more effective use of Capital this may include chasing Debtors and negotiating longer Credit periods with suppliers

all of these sources are a great way of raising large amounts of cash external Finance is generated from outside the business in a variety of ways the main sources are

Loan Capital venture Capital ordinary share Capital and personal funding Loan Capital is one of the most common ways of funding a business Loans are often used to purchase fixed

Assets such as land and machinery typically they are repaid in monthly installments and the bank will usually require collateral in the event of a business defaulting although large amounts of funding are available Loans are becoming increasingly difficult to get

and the application process can be long winded furthermore too many Loans increase the company’s gearing to dangerous levels business bank accounts will often come with an Overdraft facility that will allow the business to withdraw more money from the bank

than it has in its account it’s a flexible short-term method of borrowing extra money however it’s important to remember that interest is calculated on a daily basis and it can be recalled at very short notice venture Capital is an extremely risky type of investment

that a venture Capitalist will make in a business which they believe has huge growth potential venture Capital provides long-term committed share Capital to help companies grow and succeed venture Capitalists typically prefer to

invest entrepreneurial businesses obtaining venture Capital is very different from taking out a Loan with a bank banks have a legal right to interest on a Loan and repayment of the Capital regardless of whether the business is a

success whereas venture Capital is invested in exchange for an Equity stake in the business as a shareholder the venture Capitalists return is dependent on the Profitability of the business this return is earned when the venture

Capitalist exits by selling its shareholding when the business is sold to another owner alternatively a company might want to use ordinary Shares to raise cash to do so they would raise new Shares and offer them to new or existing shareholders the

market value of a company Shares is determined by the price another investor is prepared to pay for them in the case of publicly quoted companies this is reflected in the market value of the ordinary Shares traded on the Stock Exchange lastly

owners of small businesses may choose to invest their own money into their business this money could come from personal Savings inherited funds personal bank Loans for example they may make this decision because they desperately want their business to work and also

because it’s difficult for businesses to get Credit the biggest risk is that if the business fails the owner loses their Investments or Assets you