Sources of finance

• Bank overdraft
• Trade credit
• Factoring

• Bank loans
• Leasing
• Hire purchase
• Grants

• Share capital
• Retained profits
• Venture capital
• Mortgage
• Long-term bank loans

• Retained profits
• Sale of assets
• Owner's capital

• Bank overdraft
• Trade credit
• Factoring
• Share capital
• Loans
• Debentures
• Mortgage
• Hire purchase/leasing
• Grants

~ the profit kept in the business rather than paid out to shareholders as a dividend.

Advantages:

• They are flexible - management have complete control over how they are reinvested
• Do not dilute the ownership of the company

Disadvantages:

• Danger of hoarding cash
• Shareholders may prefer dividends

~ money invested into the business by the shareholders.

Advantages:

• Only need to pay dividends if a profit is being made
• Possible to raise large amounts of finance
• No interest repayments

Disadvantages:

• Loss of ownership as shareholders are part owners
• Potential risk of loss of control
• Complex and costly process of issuing shares

~ capital invested in a project in which there is substantial element of risk, typically in a new/expanding business.

Advantages:

• Can raise substantial amounts
• Business benefits from specialist investor support
• Brings better discipline to business management and strategy

Disadvantages:

• Venture capitalist requires a high rate of return
• Not long-term
• Loss of control - venture capitalist may take a majority share in company

~ when a business sells its (idle) assets to raise capital.

Advantages:

• Can raise a considerable sum of money
• Improve profitability if no longer required

Disadvantages:

• Possibility of receiving low value for the asset as they depreciate in value
• There may not be a desired market for these assets

~ the practise of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount.

Advantages:

• When sharing the idea, you often get feedback and expert guidance on how to improve it 
• It is a good way to test the public's reaction to your product 
• Your investors tend to be your most loyal customers

Disadvantages:

• If you have a bad idea, then no one will fund it
• High risks of fraud

~ a legal agreement by which a bank lends money at interest in exchange for taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt.

Advantages:

• (fixed) you know exactly what your mortgage payment will exactly be for the whole of the residential loan
• (adjustable) teaser rate - this is the starting interest rate of the adjustable mortgage. It is lower than the fully extended indexed rate
• (adjustable) possibility of interest rates going down

Disadvantages:

• If mortgage rates are high, you may not be able to pay it off
• Risk losing property

~ a form of debt that is paid offf over an extended time frame that exceeds one year in duration.

Advantages:

• The business can purchase machinery now and use it in the business to start generating profit
• Repayments are spread out over a long period of time, thus helping cash flow

Disadvantages:

• Charged a large amount of interest
• Can be difficult to have the loan paid back on time

~ a contract by which one party conveys land, property etc to another for a specified time, usually in return for a periodic payment.

Advantages:

• Less capital-intensive - less investment needed
• The company grows more rapidly
• May provide more flexibility to a business

Disadvantages:

• If the business is successful, the lesser may demand higher rental payments when leases come up for renewal
• Leasing can be expensive

~ a system by which one pays for a thing in regular instalments while having the use of it.

Advantages:

• Enables businesses to buy assets when they have little cash available, or when they do not want to commit large amounts of cash to acquire assets
• Useful for businesses that have little finance options
• No collateral required - security pledged for payment of a loan

Disadvantages:

• A large cash deposit may be required
• Interest rates are generally higher than for bank loans
• Failure to make payment in the asset being taken back
• You don't fully own the asset until you've made your final payment

~ a public subsidy offered to a recipient for business.

Advantages:

• Don't have to be repaid
• Can be large amounts of money given

Disadvantages:

• Application can be difficult
• Not all businesses are eligible for one

~ where a bank allows a firm to take out more money than is in its bank account.

Advantages:

• Flexible way to fund working capital - acts as a buffer for day-to-day expenses
• Less paperwork

Disadvantages:

• Interest charge varies with changes in interest
• Higher interest rate than a bank loan

~ an arrangement in a business allows other companies to pay for goods or services several weeks/months after receiving them.

Advantages:

• It is equivalent to a loan from the supplier and is interest free
• It allows companies to use money for other purposes

Disadvantages:

• There are usually discounts for prompt payments
• Failure to pay on time can present problems on future orders

~ where a firm sells on its debt to a third party factor

Advantages:

• Allows a business to recieve cash immediately
• Reduces need for overdraft

Disadvantages:

• The factor buys at a discount
• Customers could be aware if debts are factored and lose faith in company