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SOURCES OF FINANCE (Internal Finance (EZEKIEL ) (Owner funds - Funds that…
SOURCES OF FINANCE
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External Finance
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Long term(Santiago)
Sale and leaseback (Santiago)Pros:
- Firm can be more flexible as new and more efficient assets can be leased.
- Ownership of many assets leads to cost: e.g maintenance.
Cons:
- In long term you usually pay more by renting.
- Can reduce the value of the firms assets that can be
used as security against future loans.
- May eventually loose use of the asset when lease ends.
Share Capital: (Santiago)Pros:
- The most important reason for corporations to issue shares is to raise money
- Share issue is flexible
- A corporation can repurchase issued shares
Cons:
- It costs money to issue stock.
- Often, it costs more to raise money from issuing shares than it costs to borrow money.
- The value of existing shares, will usually cause the share price and dividends per share to fall
Loan Capital(Santiago)Pros:
- Purchase without liquidity
- Provides capital for operations
- Better interest rates
- Flexibility
- Cash discount
Cons:
- Security needs
- Partial funding requirement
- Strict repayment schedule
- Payment penalties and charges
- Increase compliances.
Grants:(Santiago)Pros:
- Receiving money without doing anything.
Cons:
- Sometimes there are string attached to the grants, therefore you can't do whatever you want with them.
- You need to time consuming research about the person/company/bank that gave you the grant .
Debentures(Santiago)Pros:
- Debentures ensure a higher position for repayment as a creditor.
- Valuable financial protection
- encourage long-term funding to grow a business.
- Debentures usually provide a fixed rate of interest for the lender.
Cons:
- no flexibility in their obligation to make interest payments on the debenture.
- Restrictions imposed by securing the debenture with an asset
- lender loses their right to vote and take a share of company profits.
venture capital(Santiago)Pros:
- Large amounts of capital can be raised
- Increased publicity and exposure
- Help managing risk is provided
Cons:
- Founder ownership is required
- Overall costs of financing is expensive
- Loosing the business for founders
Hire purchase(Santiago)Pros:
- Spread the costs of high ticket items
- You will own the asset after paying the last instalment loan, which can be more beneficial than leasing
- You will have immediate use of the item once the agreement of the vendor has been signed off.
- It is very easy to obtain
Cons:
- Contracts are usually fixed, therefore if you have financial difficulties in that period you may lose the asset.
- You will end up paying more for whatever it's you’re hiring
- Because you don't own the asset, it won’t be protected if you’re made bankrupt.
Leasing(Santiago)Pros:
- Balanced cash outflow.
- Quality assets
- Better use of capital
- Low capital expenditure
Cons:
- High percentage of debt
- Limited financial benefits
- No ownership
- Maintenance of the assets.
- Limited tax benefit.
Subsidies
Pros
- Lowering prices and control inflation to keep prices from booming
- Prevent business from declining in the long run
- Greater supply of goods as people would need basic neccessties and government needs them to provide
Cons
- Higher taxes for people to subsidies
- Shortage of supplies due to the lower price and high demand making the suppliers hard to meet the demand
Business Angels Definition: Business professionals looking to invest in businesses and provide their expertise in actively running the business.Pros:
- Large amounts of capital can be raised.
- Publicity and exposure.
- Help from experts with running areas of the business that may need improvement.
Cons:
- Often large percentages of the business are given away.
- Owners may lose a lot of control over the business.
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