1. Sources of Finance

2. Why do businesses need finance?
When setting up
Working capital – day to day running of the business
To expand
Unforeseen events – sudden decline in sales, large customer fails to pay for goods on time and finance is need to pay for expenses.

3. Borrowing Money Time frame Possible usage Short term Under 1 year
Working capital
Medium term
1-5 years
Capital expenditure (vehicles, refurbishments etc)
Long term
Over 5 years
Major capital expenditure (buildings, lands etc)

4. How much can finance can a business get?
It depends on:
The type of business
Stage of development
State of the economy

5. Activity
Now complete Activity 1 individually.

6. Sales of Assets Internal Sources of Finance Retained Owners Profit own
funds
Sales of
Assets

7. Internal Sources of Finance
In tables use the paper provided to detail the advantages and disadvantages of the internal sources of finance.

8. External Sources of Finance
Short-term finance –
Debt factoring – a debt factoring company will pay to its client all or part of the value of an outstanding invoice and then organises the collection of debt.
Overdraft – The bank allows a firm to overdraw up to an agreed level
Trade credit – a firm obtains goods/services from another business but does not pay for it immediately. They may be given 30, 60 or 90 days to pay for them.

9. External Sources of Finance
Add the advantages and disadvantages of each of the short term external sources of finance to your paper.

10. External Sources of Finance
For growth and expansion
Bank loan – secured and unsecured
Leasing
Hire purchase
Sales and leaseback
Venture capital
Share issue
Debenture
Long term loans
Grants from the government
Do you know what any of these are?
Medium term
Long term

11. External Sources of Finance
Add the advantages and disadvantages of each of the medium and long term external sources of finance to your paper.

12. Activity
Now complete Activity Sheet 4 individually.

13. Case Study Focus
Share issue
Rent Vs Mortgage

14. Share issue
A source of finance used to raise finance in return for a ‘share’ in the business.
may be used to fund a major business development
Dividends may have to be paid and the shareholders are entitled to have a say in the running of the business.

15. Mortgage A very long term method of borrowing money
Used to help fund the purchase of property.
Money borrowed has to be repaid together with interest.
Property belongs entirely to the business once repaid.
Can make changes to the building (subject to planning permission) and its interior design.

16. Renting
This is when the person rents an item, pays monthly but never owns the item. At the end of the agreement they can renew the contract, leave if they need to or upgrade to a bigger premises if required. Also, if it needs to be repaired they will do that as part of the agreement.

17. Activity
Working individually or in pairs on your table complete the case study sources of finance activity.