1. Date: 13th January 2016 Title: Obtaining Finance

2. Starter
In pairs, think of a start-up business and in your exercise book, write two reasons why they might want to borrow.

3. Lets look at how to finance a start-up

4. Short Term finance
Sources of money that has to be repaid either immediately or fairly quickly, such as an overdraft, paid back within a year.

5. Long term Finance
Long term finance is either never repaid or repaid over a long period of time (5-25 years)
Long term sources include:
Owners own capital/savings
Share capital
Venture capitalists
Loans
Mortgages
Retained profit
Leasing
Grants

6. Sources of finance Personal savings Retained profit Working capital
Internal
External
Personal savings
Retained profit
Working capital
Sale of assets
Ordinary shares
Debentures (secured loans)
Other loans
Overdraft facilities
Hire purchase
Trade Credit
Grants
Venture capital

7. Long term Finance

8. Owners Capital or savings
When the owner uses his or her own savings to invest in the business. Usually a sole trader will start up a business with their own savings. Pair discuss question: Is this common?

9. Share capital
A share in the business is sold to an individual. This money is then used to purchase new assets or to expand. In a Private Limited Company these shares can only be bought by friends or family members. Pair write question: Do you know any PLCs?

10. Venture Capitalists
A person or company who buys shares in a business that they hope will grow fast. In the long term, they will sell the shares at a profit and often reinvest in other companies. Pair write question: What TV show is based on Venture capitalists?

11. Loans
An amount of money is borrowed from the bank and then repaid with interest over a set period of time. The loan period can range from 1 year to 10 years. Look for the APR amount – the higher the APR the more interest is paid. Pair discuss question: What is APR?

12. Selling assets
When a business sells off fixed and current assets which it no longer needs in order to raise finance for new projects. Pair write question: State one disadvantage to this method.

13. Retained profit
When a business makes a profit and keeps it rather than spending it, it is called RETAINED PROFIT The retained profit is then available to use within the business, for developing the business or for a ‘rainy day’.

14. Leasing
Businesses can rent equipment from other companies rather than buying them. These rental agreements are referred to as LEASING Pair write question: Can you think of any examples?

15. Grants
Some businesses may get grants to help them start up (especially small businesses).
Organisation such as the Princes Trust give business start up grants to young people up to the age of 30.
Grants are also available from the government and the European Union.
Grants DO NOT have to be repaid

16. Plenary
In pairs, think of three places that this business would want to obtain finance from.

17. Short term Finance

18. Bank overdrafts
An overdraft facility is where you can withdrawal more money than you actually have in an account. An overdraft of £2,000 would let you go £2000 ‘in the red’ which may help a business in the short term.
Personal overdrafts tend to be between £100-£1000.

19. Trade credit
TRADE CREDIT is when a supplier allows you a period of time
(such as 30 days) to pay for goods and services.
However, your customers may also expect TRADE CREDIT so the advantages of this can be cancelled out!

20. Factoring
A source of finance where a business is able to receive cash immediately for the invoices it has issued from a FACTOR such as a bank instead of waiting the typical 30 days to be paid. A FACTOR is a financial service company like a bank and they charge a fee for this service.

21. Plenary
In pairs, think of three places that this business would want to obtain finance from.