Please enable JavaScript.
Coggle requires JavaScript to display documents.
Factors affecting choice in finance - Coggle Diagram
Factors affecting choice in finance
Availability of internal funds
If business has internal funds available, it must consider whether it is appropriate to use funds.
Time
Timeframe (period) or repayments or 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 amounts of capital for long-term use.
Trade credit is usually interest free, but is only available for short periods of time.
Types of business
Sole traders may only have a limited range of financial options.
Public limited companies (PCL) usually has a wide range of sources fo finance available.
PLCs, due to the size of loans they undertake and the security they offer, aren often able to negotiate lower interest rates on bank loans.
Control
Degree of control that a business's original owners wish to maintain will affect their choice of finance.
Current financing
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.
A highly geared business may put itself at risk if it takes on additional loans.
Any increase in interest rates will have a significant effect on the firm's debt burden.
Security
Small businesses may have little to offer as security on a bank loan and may find it difficult to get one.
Larger businesses will have proven track records and assets that they can use for security.
Banks are potentially more likely to lend to large firms.