sources of finance

Internal source of finance

Savings

Reserves

External sources of finance

Overdraft

Loan

Credit card

Trade credit

Crowd funding

Hire purchase

Share issue

Mortgage

Venture capital

Crowd funding

What is savings also known as?

Owners capital

Advantage of savings

Not having to repay the sum used

Not having to pay interest on the amount obtained

Disadvantages of savings

The amount is limited to how much the owner is willing to invest

Reserves

Also known as retained profit

Previous profit made from successful trading

It’s kept within the business rather than shared between owners

Advantages of reserves

Reserves dont have to be repaid

No interest has to be paid on the sum used.

Disadvantages of reserved

A new business won’t have any reserves

The amount is limited to how much previous profit has been retained

Overdraft

Where a bank allows more money to be withdrawn from an account than there is in it

Meaning that the available balance is less than zero

Advantages of overdraft

Flexible

A cheaper source of short term finance

What is flexibility

It is only used when needed

Disadvantages of overdraft

Interest is charged on the amount withdrawn

Agreed in advance

Can be expensive