3.2 Sources of Finance

List internal sources of finance (3)

• Personal funds

• Retained profits

• The sale of assets

List External sources of finance (8)

• Share capital

• Loan capital

• Overdafts

• Trade credit

• Crowdfunding

• Microfinance providers

• Business angels

Share capital (ext. sources of finance)

money raised by selling shares in an LLC

Loan capital (ext. sources of finance)

Obtained from commercial lenders such as banks eg: mortgages; BD loans; debentures

Debentures

Long term lans issued by a biz which needs to be paid before shareholders incase a business fails.

Overdrafts (ext. sources of finance)

Financial service that allows a business to take more from its bank account than it has.

features of overdraft (4)

• more cost effective

• higher interest rates

• short term

• used where large case outflow is needed

Trade credit (ext. sources of finance)

Postpone payments, usually paid off within 30-60 days; buy now/ pay later C

Crowdfunding (ext. sources of finance)

A large number of individuals pay a small amount to finance. relies of huge reach such as social media platforms. 

Leasing (ext. sources of finance)

customer pays a rental income to the leasor in exchange foe things such as land, machinery, etc 

Microfinance providers (ext. sources of finance)

Aimed at entrepreneurs of small businesses, typically females and this on low income.

Advantages of Microfinance

• accessibility

• job creation

• Social wellbeingDis

Disadvantages of Microfinance

• immorality 

• limited finance 

• limited eligibility 

Business angles (ext. sources of finance)

Extremely wealthy individuals who choose to invest their now money in business that offer high growth potential

Wha do business angles look for (4)

• Return on investment

• business plan

• people

• track record

Short term sources of finance 

Available for a period of less than a year 

Long term sources of finance

Available for a period greater than 1 year

Factors affections financial choices (6)

SPACED

• Size and status of firm

• Purpose of finance

• Amount required

• Cost of finance

• External factors

• Duration