Theory on Sources of FinanceFor Lesson 9

Sources of Finance

Some sources of finance will be available as soon as the business starts up

Some sources are only available in the longer term

Finance available from the start

Money put in by the owners (owners capital)

Bank loans(interest will have to be paid)Grant from the GovernmentHire PurchaseLeasing (renting equipment can save money)

Trade creditVenture Capital - getting another business to “take a risk” on your business and invest some money

Finance available in the long term

Bank Overdraft

Retained Profit (profit made in earlier years that is re-invested back into the business)

Companies - Ltd and PLC

These companies are also able to raise money by issuing shares.

Also debentures can be issued – certificates issued by companies acknowledging their debt. Debt is paid at a fixed rate of interest. These can be traded on the stock exchange.

Short – Medium –Long Term

An organisation needs to match the source of finance to the time period they require it for, e.g.

Long term – mortgage for buildings Medium term – loan for new machines Short term – trade credit to buy materials

Video to watch

http://www.bbc.co.uk/learningzone/clips/financing-a-business/10960.html

http://www.youtube.com/watch?v=5ll0mKg6-yI