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Describe sources of internal and external finance for a business

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Introduction

Transfer-Encoding: chunked ´╗┐There are many sources of finance that a business needs to be able to employ their business successfully. There are internal and external sources of finance. 1) Internal sources of finance are funds found inside the business. Internal sources of finance include: Own personal savings The owner would have saved lots of money over a period of time, and they can therefore use this money towards the business. Using personal savings is good because no repayments need to be made and they do not need to worry about paying any interest. However, if you use all your personal savings, it will mean there will be no more funds to go towards emergencies. Capital from profits Capital from profits is the retained profits from their business, after paying expenses and tax. They can use this money to go towards the business and like personal funds, they do not need to pay back this money or pay any interest back. ...read more.

Middle

The bank will look at the owners financial records and if they agree that they have the ability to back the loan, they will grant the unsecure loan to them. Another way to gain money from the bank is an overdraft. An overdraft is an arrangement with the bank which allows you to withdraw more money than you have in your account (short term loan). However, this needs to be repaid and with interest. Commercial mortgage A commercial mortgage is a loan from the bank which allows you to buy a property that you can operate from. A mortgage may be between 20 and 30 years and needs to be paid back with interest. There are many different types of mortgages. Firstly, there?s a variable rate mortgage. This is when the amount you pay changes in contrast to the changes in the level of the Bank of England rate. Therefore, if the rate goes up, you will have to pay more; and if the rate goes down you will pay less. ...read more.

Conclusion

Leasing Leasing is when you pay someone for the use of something like property, vehicles or land. The owner could lease a property to operate from and vehicles to transfer their goods. If something gets damaged they will not be responsible for replacing or fixing it. Factoring Factoring is when you can sell your own debts to a third party (debt factoring companies). They will pay you in return which allows you to gain money to go towards the business. However, once you have sold the debt to a third party. Share issues Share issues are when you issue shares. Private limited businesses can only issue shares to their friends and family. Private limited businesses can control who buys shares. Whereas people who have a public limited business, may be brought out. This is because the shares are listed the London Stock Exchange which means that anyone can buy a share. Therefore, could buy more shares than the original owner. Selling shares means you receive money that can go towards the business. ...read more.

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