3.2 Advantages and Disadvantages of Sources of Finance

Advantages of Personal Funds

No repayment pressure
Full control
Quick and accessible

disadvantages of Personal Funds

High personal financial risk
Limited amount
Over-reliance on owner

Advantages of retained profit

No repayment or interest
Available
Does not dilute ownership

Disadvantages of retained profit

takes many years to accumulate enough funds
Loss of dividends for owners/shareholders
stakeholder dissatisfaction

Advantages of Sale of Assets

Can raise large amounts quickly
Useful when changing strategy
Improves cash flow without debt

Disadvantages of Sale of Assets

Opportunity cost
May not raise enough funds
Could weaken long-term operations

Advantages of Equity Finance

No repayment or interest
Risk is shared among owners
expertise and support

Disadvantages of Equity Finance

Loss of control
Loss of future profits
Shareholder conflict

Advantages of Business Angels

early-stage funding
mentorship and expertise
business growth

Disadvantages of Business Angels

Loss of ownership and future profits
conflicts
High return expectation

Advantages of Venture Capital

large amounts of finance
Supports business growth
No repayment or interest

Disadvantages of Venture Capital

Loss of ownership and control
Pressure to grow
conflicts with investors

Advantages of Share Capital

Raises large amounts
No repayment or interest
Allows early investors to exit

Disadvantages of Share Capital

Loss of ownership and control
Obligation to pay dividends
Costs and regulatory requirements

Advantages of Loan Capital

Immediate access
Repayment is spread
Suitable for medium- and long-term needs

Disadvantages of Loan Capital

Collateral is often required
Interest must be paid
Risk of losing assets

Advantages of Overdrafts

immediate access to short-term funds
covers day-to-day expenses
flexible

Disadvantages of Overdrafts

very high interest costs
strict overdraft limits
risk of cash-flow pressure if revenue is delayed

Advantages of Microfinance

access for poor
no collateral needed
supports small businesses

Disadvantages of Microfinance

small loan size
high interest
short repayment period

Advantages of Trade Credit

delays payment
improves cash flow
no interest

Disadvantages of Trade Credit

short-term only
supplier dependency
late fees possible

Advantages of Leasing

no upfront cost
access latest assets
maintenance often included

Disadvantages of Leasing

never owns asset
ongoing payments
long-term cost high

Advantages of Crowdfunding

many small investors
access via platforms
flexible types

Disadvantages of Crowdfunding

platform fees
time-consuming setup
uncertain funding