Sources of finance

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Nathaly Salas 2 IB "A" January 14th, 2021

Sources of finance

External sources of finance

Business angels

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

Venture capital

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

Leasing

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

Debt factoring

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

Subsidies

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

Grants

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

Trade credit

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

Overdrafts

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

Loan Capital

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

Share Capital

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

Internal sources of finance

Sale of assets

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

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

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