Sources of Finance

• Help with liquidity problems

• Raise larger sums of money for capital expenditure

Owner’s capital - personal savings

Advantages:

• Do not have to repay

• No interest

• Owners maintain control

• Motivational

• No application procedures

Disadvantages:

• Risk losing everything

• Limited

Retained profit

Advantages:

• No interest

• Doesn’t dilute business ownership

• No repayments

Disadvantages:

• Not suitable for new businesses or those that don’t have retained profit

• Limited

• Reduces security blanket

• Cause tension with shareholders if it is at the expense of their dividend

Sale of assets

Advantages:

• No interest

• No repayments

• Making use of dead asset

• Immediate lump sum cash injection

Disadvantages:

• Expensive in the long run if you need to lease the asset back

• Loss of asset

• One off

• Unsuitable for start ups

Sources of finance - where the finance is coming from

Methods of finance - how the finance is provided

Sources:

Family and friends

Advantages:

• Repayment flexible

• Interest free

Disadvantages:

• Limited

• May place pressure on relationships

• They may want to become involved in the business

Banks

Advantages:

• Fixed sum - easy to plan for repayments

Disadvantages:

• Interest

• Repayment

• Difficult to persuade banks to lend

• Not flexible

Peer to peer funding

Individuals lending to those they don’t know via websites - motive is profit

Advantages:

• Less interest

Disadvantages:

• Restricted to small amounts and small established businesses

Business angels

Advantages:

• Expertise

Disadvantages:

• Require a share

Crowdfunding

Advantages:

• Millions of potential funders can be reached

• No interest

• No repayment

Disadvantages:

• May not reach target amount

• May be copied by competitors