2.1.1 internal finance & external finance

Business 2.1.1 internal finances 2.1.2 externa finance

internal finance

money that comes within the business

external finance

money that comes from outside the business

sources of finance

where the money comes from

methods of finance

how the money comes

internal sources of finance

1. owners capital

   pro:- do not have to repay

   con:- risk losing everything

2. sales of assets

   pro:- no interest

   con:- no longer have a potential use for asset, might be needed in the future

3. retained profit

   pro:- no interest

   con:- share holders mights ask for it back

external sources of finance

1. overdraft

2. trade credit

3. loan

4. grants

5. share capital

6. venture capitalists

overdraft

the facility to overspend on a current account up to an agreed sum.

pro:- improves cash flow

con:- interest payments are high

trade credit

an arrangement by a supplier to provide goods and services on account

pro:- more time to pay back money owed

con:-hard for a start up business to build trust

grants

fixed amounts of capital provided to business by the government or other funding organisations

pro:- does not need to be repaid

con:- strict criteria

loans

when a lender provides capital to a borrower and the borrower agrees to repay the borrowed money, with interest over a long period of time.

pro:- can be negotiated to meet business requirements

cons:- business has to pay interest

share capital

money raised from the sale of shares which is used to fund the future activities of a business

pro :- no interest or repayments

cons:- possible loss of ownership

leasing

a contract that allows the renting of assets from another party.

pros:- lease company is responsible for all repairs and damages

cons :- more costly in the long run