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Source of capital (internal finance (Owners fund (a sole trader or members…

- - - - benifit
        
        it provides an interest free source of funds
      - drawback
        
        it is not always avalible
        
        owners receive less reward for their own risk
  - - - Advantages
        
        effective management of cash is good business practise
      - Drawbacks
        
        money is not always avalible
        
        a firm must ensure it still has sufficient stock to meet customer demands
  - - - benefits
        
        It can enable a business to release large sums of money
      - drawback
        
        the firm loses the use of the asset
        
        finance is only available if the asset can be sold
  - - - drawback
        
        Owners recieve less reward for their risk
        
        it is not always avalible
      - benefit
        
        it provides an interest free source of funds
- - - - Share issue is the process by which companies pass on new shares to shareholders, who may themselves be new or existing shareholders.
        
        benefit
        
        the stock shares are not debts of the corporation and don't have to be repaid
        
        corporations can use share sale proceeds however they want
        
        Share issuance is flexible because the corporation can decide how many shares to issue
        
        drawback
        
        It costs money to issue stock
        
        The management of a corporation that issues shares to the public must publicly disclose financial and operational details, a requirement that costs money and might reveal information the corporation would rather keep secret.
        
        a corporation that issues additional shares after the initial sale is diluting the value of existing shares, which will usually cause the share price and dividends per share to fall.
    - - a transaction in which the owner of a property sells an asset, typically real estate, and then leases it back from the buyer.
        
        benefit
        
        Will avoid costs usually associated with conventional debt financing for real estate transactions
        
        Will allow the user/seller to depreciate the land as the lease payments will cover the use of land as well as the building
        
        Lease payments are tax-deductible
        
        Will remove debt associated with real estate from the balance sheet and improve the company’s debt to equity ratio
        
        drawback
        
        Any future property value appreciation is forfeited by the user
        
        The user can no longer sell the real estate as part of any subsequent sale of the business as a whole
    - - The extension of money from a bank to another party with the agreement that the money will be repaid.
        
        benefit
        
        Keep Control of the Company
        
        Bank Loan is Temporary
        
        Interest is Tax Deductible
        
        drawback
        
        Tough to Qualify
        
        High Interest Rates
    - - agree to give or allow (something requested) to
        
        benefit
        
        they don’t have to be repaid. They also don’t require the owners to surrender any equity in the business.
        
        Such awards can be used to enhance the prestige of the business that wins the grant, particularly for those given by notable organizations
        
        drawback
        
        Because grants benefit businesses so much and because there aren’t many of them, the competition to win them is fierce
        
        Grants may be free money, but they rarely come without conditions -- the donor expects you to act in the agreed-upon way to secure the funding
        
        Grants may be renewed from year to year in some circumstances, but they can vanish with little notice
    - - a long-term security yielding a fixed rate of interest, issued by a company and secured against assets.
        
        benefit
        
        Investors who want fixed income at lesser risk prefer them.
        
        As a debenture does not carry voting rights, financing through them does not dilute control of equity shareholders on management.
        
        Financing through them is less costly as compared to the cost of preference or equity capital as the interest payment on debentures is tax deductible.
        
        The company does not involve its profits in a debenture.
        
        The issue of debentures is appropriate in the situation when the sales and earnings are relatively stable.
        
        drawback
        
        Each company has certain borrowing capacity. With the issue of debentures, the capacity of a company to further borrow funds reduces.
        
        With redeemable debenture, the company has to make provisions for repayment on the specified date, even during periods of financial strain on the company.
        
        Debenture put a permanent burden on the earnings of a company. Therefore, there is a greater risk when the earnings of the company fluctuate.
    - - capital invested in a project in which there is a substantial element of risk, typically a new or expanding business.
        
        benefit
        
        VCs can Provide Guidance & Expertise.
        
        VCs Can Connect Startups with Additional Resources, Connections, and Hiring.
        
        Source of Financing and Rapid Growth.
        
        You Don’t Have to Repay the Money.
        
        dawback
        
        Loss of Control and Ownership Status.
        
        Bottom Line Ties to Results (May Require Very High ROI)
        
        Due to Risk, VCs May Take a Long Time to Decide to Invest.
        
        VCs May Mot Release All Funds up Front.
    - - similar to leasing but gives the firm the advantage of owning the asset after it has made all the monthly purchases.
        
        benefit
        
        Items can be repossessed if payments are not made.
        
        It allows for ownership of newer, better equipment
        
        It spreads out the costs over time
        
        There are usually no taxes charged on a hire purchase agreement
        
        It can be paid off early in most cases
        
        drawback
        
        Items can be repossessed if payments are not made
        
        Monthly payments are often reflective of credit ratings
        
        It forces the transaction to cost more than it would otherwise
        
        Not paying the required payments reduces a credit score
        
        There are fewer discounts usually available
    - - hiring an asset instead of purchasing it. the business pays a set fee. and after the agreed period of time the asset returns to the owner
        
        benefit
        
        lower initial capital
        
        it spread the impact flow of cash
        
        the firm doesn't need to worry about maintenance of the asset
        
        can replace asset regularly
        
        drawkbacks
        
        the total cost of leasing is usually higher than purchasing the asset
  - - - where a bank allows a firm to take out more money than it has in its bank account.
        
        benefit
        
        helps in keeping good track record
        
        timely payments
        
        less paperwork
        
        flexibility
        
        benefit of interest cost
        
        handles timing mismatch of flow funds
        
        drawback
        
        higher interest rates
        
        risk of reduction in limit
        
        risk of seizing
    - - where suppliers deliver goods now and are willing to wait for a number of days before payment.
        
        benefit
        
        Minimal Cash Outlay
        
        Discount for Fast Payments
        
        drawback
        
        Fees and Penalties
        
        Loss of Trade Credit Privileges
    - - where firms sell their invoices to a factor such as a bank. They do this for some cash right away, rather than waiting 28 days to be paid the full amount.
        
        benefit
        
        Immediate cash inflow
        
        attention towards business operations and flow
        
        speedy arrangements of finance
        
        sales not loans
        
        drawback
        
        reduction of profit
        
        reliability of customer credit
        
        higher finance charges
        
        loss of personal touch