A business may require a range of financing options which can be from internal or external sources.

Internal:

Retained Profit: the portion of a company's profits that is not paid out as dividends to shareholders but is instead retained by the company for future use.

+: A free source of finance that does not incur interest.

Interest: the fee a business pays a lender (creditor) to borrow money.

-: Shareholders may wish to receive it back in the form of a dividend.

Sale of assets

Asset: a resource of value that you own or lease that helps you run your business.

+: Frees up value in unwanted assets to be invested in other areas of the business.

-: The business loses the benefit of the asset, e.g. no longer owning a delivery vehicle.

Owner’s capital

The personal assets of the business owner e.g savings, redundancy payments, inheritance, or personal credit cards.

+: A free source of finance that doe snot incur interest.

-: Owners could lose their personal investment.

External sources:

Overdrafts

An agreement with the bank where businesses can make payments from their bank account exceeding the available cash balance.

+: Flexible way to fund working capital- acts as a buffer for day-to-day expenses.

The capital of a business represents the finance provided to it to enable it to operate over the long term.

-: The bank may ask for repayment at any time and interest rates are high.

Trade Credit

Trade credit is a type of short-term financing offered by suppliers or distributors that allows a business to purchase goods or services now and pay for them later.

+: Suitable for buying raw materials from suppliers as it gives the business the opportunity to generate revenue before having to pay.

-: Delays in payment can damage relationships with suppliers

Grants:

A sum of money provided by the government to a business that does not have to be repaid.

+: Government schemes might be available for some small businesses.

-: Generally given for social, economic or environmental benefits

Leasing:

Leasing is like renting a piece of equipment or machinery.

+: Assets can be acquired without large capital spending to acquire them.

-: In the long term, a leased asset is more expensive than purchasing outright.

Bank loans

A fixed-amount loan from a bank is generally used to finance long-term assets.

+: Can be negotiated to meet business requirements

-: Business has to pay interest and does not have to offer collateral to secure it.

An asset that a borrower pledges to a lender as a security for a loan.

Venture capital

Venture capital is a type of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have high growth potential.

+: Can bring expertise into the business.

-: Owners may not want input from elsewhere into the running of the business.

Share capital

Share capital is the money invested in a company by the shareholders.

+: It can access very large amounts of capital and no interest.

-: Only available to Tld ( people you know) and Plc ( public)

Crowdfunding

Crowdfunding involves the collective effort of a large number of individuals who network and pool small amounts of their capital to finance a new or existing business venture

+: Cheap and easy to set up.

Nit suitable for raiding large amounts of money.