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Sources of Finance - Coggle Diagram

- - - - business does not have to payback
      - may lead to loss of ownership as investors demand the right to shares in new companies
    - - dependent on cause
        
        the more creative and innovative it is, the more likely crowdfunding can be used to source funds
  - - - lessee pays rental income to hire assets from lessor who is the legal owner of the assets
        
        may be cheaper to lease assets in the short to medium term
        
        suitable for business customers who do not have initial capital to purchase assets
        
        thus, cash is released for other purposes
        
        the lessee does not have to take responsibility for repairs or maintenance, the lessor does that
        
        leasing is classified as business expense, tax bill may be reduced for lessee
        
        disadvantage is that in the long term, it is more expensive than hire purchase or out-right purchase
        
        hire purchase allows firms to pay creditors in instalments. legally, it is the property of creditor until all payments are made. often, a deposit or downpayment is made to secure deal from lender.
        
        the buyer eventually owns the asset on payment of last instalment
        
        sale and leaseback involves a business selling a particular fixed asset to raise finance and immediately leasing it back
  - - - amount is paid back in instalments over agreed period of time
    - - business development loans
        
        highly flexible loans are catered to meet specific needs of borrower to develop aspects of their business
        
        can be used for start up or expansion, purchasing of specialist equipment and other assets to improve cash flow position
      - debentures
        
        long term loans issued by a business
        
        debenture holders do not have ownership
        
        debenture holders receive interest payments EVEN IF BUSINESS IS MAKING A LOSS
        
        even before dividends are paid to the shareholders
        
        interest can be variable or fixed
        
        can increase gearing ratio; more borrowing as percentage of total capital employed; business more vulnerable to risks if interest rates increase
      - mortgages
        
        secured loans for purchase of real estate
        
        if the borrower defaults on the loan, lender can repossess the property
  - - - as a social enterprise, they enable disadvantaged members of society to gain access to essential financial services
  - - - publicly held companies can issue shares on stock exchange which is a market for second hand shares and govt. stocks
        
        existing publicly held companies can raise further finance by selling more shares in a share issue on a stock exchange
        
        this dilutes ownership and control of business
        
        comes with many legalities and administrative procedures and corresponding costs
  - - - owner loses some control to business angel
      - organisation may have to eventually buy out stake owned by business angel if it wishes to regain control and ownership
        
        their abundance of experience and financial backing can be a major advantage to the survival of a new business
    - - consider a wide range of criteria before committing capital
        
        business plan
        
        people
        
        return on investment
        
        track record
- - - - such as obsolete machinery, old equipment which has since been replaced