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Sources of Finance (External (Owner’s capital - This is money invested in…
Sources of Finance
External
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Loans - Money borrowed from a financial institution normally for a set period of time and for a specific purpose. Interest will be payable on the laon.
Crowd-funding - This involves attracting investment from a large number of speculative investors many of whom may invest relatively small amounts. If cumulatively this matches the required amount then the investments are collected together.
Mortgages - These are long-term loans, normally around 25 years, that are secured against a specific asset, for example a building. Interest will be payable on the mortgage.
Venture capital - This is investment from an experienced entrepreneur in return for a stake (equity) in the business.
Debt factoring - This involves the selling on of a business’s debts to a third party in order to receive the cash quickly. The factor company pays the business a percentage of the money owed and takes on the responsibility to chase the debts which needs to be repaid.
Internal
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Net Current Assets
current assets minus current liabilities shows the money available in the business
to fund day-to-day expenditure.
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Disadvantages
Can put pressure on customers as shorter credit terms are offered and this negatively affects relationshipos with suppliers if longer credit terms are negotiated.
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