University:
College
Course:
College Business
Academic year:

2023
Views:

29

Pages:

1
Author:

anon

Sources of Finance Businesses need short term and long term finance for working capital- short term funds are called working capital. ● Additionally, they might be required to fill in the gaps between, say, the purchase of ingredients and the eventual payment for the finished goods. Long term funds are used for – land, buildings, machinery, permanent assets etc. ● Businesses require long term finance for substantial capital expenditures, as they may not have enough to fund the purchases by themselves Sources of Finance: ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● An owner investing capital in a business gives lenders more confidence in it Additional owners capital come from ongoing profits ploughed back into the business Bank provides loans –> Borrower repays the capital over a period of time at set intervals, this is a long term finance and has interest Loans are typically taken over years rather than months More difficult to secure a business loan from a starting up stages of a business, as Banks do not have enough confidence in the business Long term finance –> loan for the purchase of property that is secured on the property If the borrower fails to pay debt, the lender can take them to court/ take ownership over the property Trade Credit: supplier does not expect immediate payment for goods/services. They give the product to the customer and receive payment after a period of time. Credit Cards: used for short term bills, and then the business or customer can then make the payment around a month later. (usually) Overdrafts: Most frequently used form of short term finance, ease cash-flow problems. Interest is calculated on a daily basis (high interest) Leasing purchase: Company or Customer makes monthly payments for the product, but never owns it. The monthly price is usually significantly lower than the cost of the good. Hire purchase: Company pays the full price on set intervals. On the last payment, the product is then owned by the company purchasing it. For small businesses (particularly in rural areas) it is almost impossible to get credit. Microcredit provides small amount of funds to set up micro-businesses (helping those who would otherwise have no income) Government provides funds for the business for particular purposes (e.g. to update machinery) Usually grant money to companies supporting a good cause/ products in great need e.g. Environmentally friendly cars. They may as well grant grants in order to attract businesses to locate in a certain area.