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3.1 Sources of Finance - Coggle Diagram
3.1 Sources of Finance
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Sources of finance
Setting up a business will require start-up capital of cash injections from the owner(s) to purchase essential capital equipment and possibly premises
Business need to finance their working capital - the day to day finance needed to pay
bills and expenses and to build up stocks
Business expansion needs finance to increase the capital assets held by the firm
and , often , expansion will involve higher working capital needs
Expansion can be achieved by taking over other businesses . Finance is then
needed to buy out the owners of the other firm
Capital Expenditure
Money spent to acquire items in a business that will last for more than a year
and may be used over and over again.
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Share Capital
- Should be used for long-term needs, such as purchasing machines or systems, or acquiring computer systems or acquiring businesses
- Limited companies may raise funds through the sale of shares.
Loan Capital
- Usually provided for a fixed period of time, with repayments evenly spread out over the length of the loan
- Interest rate holidays is where the lender agrees not to take interest for a short period of time
Bank overdraft
Overdrafts are often used to cover cash shortages, so a business may be overdrawn
only for a matter of days.
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Trade Credit
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- Using trade credit, a business can get stock even if it does not have the cash to pay of it at the time
Grants
Governments, successful entrepreneurs and large corporations keen on promoting their social responsibilities are all increasingly seeking to help the smaller business sector with grants and soft loans.
Subsidies
Financial assistance granted by a government, a non-governmental organization
(NGO) or an individual to support business enterprises that are in the public interest.
Debt Factoring
Factor agent or debt-factoring company is a company that buys the current unpaid
invoices of a business with a percentage discount.
Leasing
Is very useful for assets that lose value or become outdated in the short and medium
term such as equipment and vehicles.
Venture capital
Financial capital provided by investors who are most prepared to share the risks of
business enterprise.
Venture capitalists usually fund start-ups that find it difficult to access money from
other financial institutions or capital markets.
Business Angels
May provide a one-time initial capital injection or continually support the businesses
through their lifetime.
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