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Finance - Sources of Finance - Coggle Diagram
Finance - Sources of Finance
Businesses need money to be able to pay bills, and employees and buy new machinery and equipment. This money might come from sales or it might come from another source.
Sole traders, partnrships and Private Limited Companies have the same sources of finance, excpet that their ownership capital is different.
Sole traders are financed by th owner's savings.
Partnerships are financed by partners (any number between 2 and 20).
Private Limited Companies are finacned by selling shares to family and friends.
Types of Sources and Finances
Bank Loan - A loan of money repaid over time with interest.
Advantage - Quick and easy to set up.
Advantage - Can be repaid over a long period of time.
Disadvantage - Interest could be expensive.
Loan from family or friends - A loan of money from family or friends that does not have any interest added.
Advantage - No interest to be paid
Disadvantage - Arguments over the borrow money might occur.
Government Grants - Money fromm the government that does not have to be paid back.
Advantage - Does not need to be paid back.
Disadvantage - Usually has conditions attached.
Disadvantage - Can take time to get as requires many forms to be completed.
Bank Overdraft - Taking more money out of a bank account than is available.
Advantage - Easy and quick to arrange for a short period of time.
Disadvantage - Usually only for a small amount of money.
Disadvantage - Daily charges and/or interest is applied.
Hire purchase - Buying an item now and paying for it at a later date (often over a period of time).
Disadvantage - Interest could make the item expensive.
Disadvantage - Item not ownded until all payments are made.
Advantage - Can recieve item immediately without paying.
Mortgage - A special type of loan used to purchase property or land.
Advantage - Can e taken out over long period of time (eg - 25 years).
Disadvantage - If interest rates change, repayments might increase.