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Factors Affecting Choice of Finance - Coggle Diagram
Factors Affecting Choice of Finance
Availability of internal funds
If business has internal available, it must consider wether it is appropriate to use funds.
Time
The timeframe (period) or repayments are exposure to debt must relate to the purchase the business making.
A fixed asset may pay for itself over many years and should be funded with long - term finance.
Cost
A business must consider the cost of raising finance.
Issuing frames is expensive, but can raise large amount of capital for long - term use.
The trade credit is usually interest free, but is only available for short period of time.
Type of business
PLCs, due to the size of loans they undertake and the security they offer, Darren often able to negotiate lower interest rates on bank loans.
Sole traders may only have a limited range of financial options.
Public limited company (PCL) usually has a wide range of sources to finance available
Control
Degree of control that a business original owners wish to maintain will affect their choose of finance.
Current financing
A highly geared business may put itself at risk if it takes on additional loans.
Level of current gearing can determine the sources of finance available.
A business that already has several bank loans may find it difficult to secure another.
Any increase in interest rates will have significant effect on the firms debt burden.
Security
Small businesses will have proven track records and assets that they can use for security.
Banks are potentially more likely to lend to large firms.
Lrger businesses will have proven track records and assets that they can use for security.