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sources of finance for business - Coggle Diagram
sources of finance for business
external equity
ordinary shares
company becomes public floated on ASX
investors can vote at AGM and receive dividends (profits)
original business owners can lose some control
rights issue- new shares that only existing share holders can buy
placements- private sale of shares to specific investors not open to public
share purchase plans- existing share holders can buy new shares at reduced costs
private equity
offers shares in the company but remains private
only selected investors can invest it is not public
usually funds expansion
external debt
Short Term
Commercial Bills
-Short term loan for larger amounts - $100k
-Business receives sum immediately
-Repaid in full (with interest) at end of loan period
-Secured against the business assets
Overdraft
-Allow business to 'overdraw' bank account - similar to a credit card
-Assist with liquidity - very common method to help with cash flow issues
Factoring
-Raise funds quickly by selling accounts receivable to a factoring company
-Receive around 80% of the total value
Long term
Unsecured notes
-Similar to a debenture, but not secured by the company's assets
-Because more risk, the business must offer investors a higher rate of interest to attract them
Debtentures
-Issued by a large public company to general investors
-The investor invests for a fixed period of time at a fixed interest rate
-Secured against the assets of the business - lowers risk
-Investor has no ownership of business - gets same interest rate regardless of company performance
Mortgage
-Secured against assets of business (usually property)
-Usually for new premises, factory of office
-Repaid with interest over a long period of time
Leasing
-Allows the business to use (rent) an asset for a fixed period of time
-Typically used for cars, computers and office equipment
-Financial lease - longer period of time - business owns the asset at the end
-Operational lease - shorter period of time - business never owns asset
internal equity
owners equity
funds contributed by owner
funds can also come from partner or issue of private share
retained profits
keep profits from business - about 50% are usually retained