Raising Finance What you need to know!

Raising finance internally (sole trader) Owner’s money e.g. redundancy money or savings Sale of personal assets Reinvesting profits from business Use profits which have been invested in a bank deposit account

Raising finance internally (companies) 1 Sale of more shares rights issue – offer more shares to existing shareholders Ordinary shares give a share in the profits preference shares give a fixed dividend regardless of level of profits

Raising finance internally (companies) 2 Retained profits Sale of assets Sale and leaseback – sell a building and then lease it back from the Finance House

Raising finance externally – small companies Loan from friends or family Training and Enterprise Council (to help unemployed people who want to set up in business) Development Agency (to help certain areas which need help) Small Firms Loans Guarantee Scheme (specific to new small companies – gives security to get a bank loan)

Raising finance externally – small companies 2 Hire Purchase – goods belong to loans company until debt paid off Leasing – get goods for fixed period of time – can then get new or buy at reduced price Contract Hire – rental paid for fixed period of time – used for vehicles and plant and equipment

Raising finance externally – larger companies Private limited company can become a public limited company Financial institutions (e.g. banks) may give mortgages or loans Venture capitalists may invest (willing to take a risk for a possible profit) Loans from government (European, central or local)

Raising finance externally – larger companies 2 Venture capitalists may invest (willing to take a risk for a possible profit) Loans from government (European, central or local)

Raising finance externally – very large companies Foreign bank loans – interest may be lower than with British institutions Unsecured bank loans –banks are prepared to risk loans with very large companies Debentures – long term loan with a fixed rate of interest and a fixed repayment date

How to choose where to get the money? Costs of raising money Length of time of deal What the money will be used for Current trading position of business Balance of debt to capital