Sources of finance

Personal funds

Source of finance for sole traders
that comes for their own personal savings
† Maximize control over the business
ø Risky to personal savings

Retained profit

Profit that remains after a business has paid
tax to the government and dividends to
shareholders
† Cheaper and permanent
ø Overuse the retained profit

Sale of assets

Sell off unwanted and unused assets
to raise funds
† Raised of cash
ø Time consuming to find a buyer

Share Capital

Money raised from the sale of
shares
† Permanent source of capital
ø Pay profits

Loan Capital

Money sourced from financial
institutions, with interest charged
† Accesible and quick
ø Failure to pay the loan

Overdrafts

A firm can withdraw more money
thanit currently has
† Flexible and cheaper
ø High interest rates

Trade credit

Agreement which allows buyer
to pay the seller at a later date
† Better cash-flow position
ø Lose out discounts

Grants

Funds provided by institutions
† Not have to be paid
ø Depends on grant markets

Subsidies

Financial assistance granted
by both government or
governmental institutions
† Not have to be repaid
ø Marred by political interference

Debt factoring

The collection of the debt
owed to the business
† Get immediate cash
ø Lose a percentage of
profits

Leasing

Allows a firm to use an asset
without having to purchase it
† Low initial capital
ø More expensive

Venture capital

Financial capital provided
by investors
† Provide funding to businesses
ø Highly profit target for startups
businesses

Business angels

Provide and support to
entrepreneurs with financial capital
† Help with business experience
ø Assume a degree of control