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Describe the major sources of finance available to business, and the advantages and disadvantages of each source.

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Introduction

Describe the major sources of finance available to business, and the advantages and disadvantages of each source. Businesses need finance (funds), there are many reasons why businesses need finance usually to expand and grow, both in the short term, and long term, to expand, operate or just plain survive. Assets sale Companies may choose or be forced to sell-off assets of the business in order to raise finance. However a disadvantage of selling assets is that it can be very destructive, it would be like selling off the business and splitting the business into pieces. Overdrafts An overdraft allows the business to overdraw from there account as a means to raise finance, an advantage of businesses using this source of finance is that an overdraft can be arranged fairly quickly and offer a level of flexibility with regard to the amount borrowed at any time, which means the business can overdraw the exact money and pay for what is only overdrawn whilst interest is only paid when the account is overdrawn. A disadvantage of this source of finance is that it is the first thing that gets paid off before bills, staff, etc. ...read more.

Middle

The advantage of this source of finance is that it is an easy way of raising finance when nobody else will help. The disadvantage of this source of finance is that the business will loose control, because of the constant influence in the running of the company by the venture capitalists. Savings This is the businesses own savings, an advantage of using this source of finance is that the money is available to the business quickly, and is available readily to the business, another great advantage is that because it's the businesses own savings it means it is readily available to use as it is free. A disadvantage of using this source of finance is that there may not be enough money saved up by the business and it could increase the risk that they spend all of their money for expansion and not having any leftover when a cash flow problem arrives. Friends and Families This finance is provided by family and friends, the advantage of borrowing from families and friends is that they are likely to lend some cash, an disadvantages of asking friends and family is that they may not have enough cash to fund the ...read more.

Conclusion

Trade credit is the largest use of capital for a majority of types of businesses and is a critical source of capital for a majority of all businesses. An advantage of it is that the business can have the goods and services before paying for them whilst allowing time for the business to generate money for them selves and paying for other expenses. An disadvantage of it is that it goves the business time in which to pay for the goods or iterms purchased whilst allowing the business to still generate capital. Shares Selling shares in a company is one way of raising long-term finance for a business. This is also known as equity finance. The advantage of equity finance is that you don't have to repay the finance or pay interest on it as you would with an overdraft or bank loan. Shares represent ownership in a company. When an individual buys shares in a company, they become one of the owners of the business. This entitles them to a share of the distributed profits of the company, known as dividends. However the disadvantage of it is that when selling shares someone may come along and build up on shares thierfore takeing responsibily of some part or whole of the company. ...read more.

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