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

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Introduction

Describe the major sources of finance available to businesses, and the advantages and disadvantages of each source. In this assignment I am going to describe the major sources of finance available to businesses, and also give the advantages and disadvantages of each of the source. Before explaining the major sources of finance available to business, advantages and disadvantages, I am going to list or give the type of sources of finance available to organisation and also tell you the reason why business need finance. Sources of finance available to business Overdraft: This is when the customer borrows from the bank by taking out more money than they have in their bank or When the amount of money withdrawn from a bank account is greater than the amount actually available in the account the excess is known as an 'overdraft' and why the account is said to be 'overdrawn'. This is a short-term credit for replenishment of current. Advantage The advantage of this is that you can get the exact amount you need. When you have unplanned expenses or run short on cash you can take overdraft which will help you to solve some little problem. It provides the finance when a business needs to pay creditors or meet other short-term bills Disadvantage: The interest pay is too expensive. The bank can withdraw the facility at any time your money come into the account without telling you. Interest will be charged according to the amount overdrawn and the time involved. ...read more.

Middle

A lease can be favourable compared to outright purchasing due to different payment. Leasing is an efficient way to obtain a property to run a business to create more money and pay off the rental fee for the property. Advantage The advantage of leasing is that if a business used this type of finance, it wont have to pay the full amount of money for the property as they only have the use of the property for a limited amount of time, which means that all the fixed costs that are meant to be paid for the property will be paid by the owner of the property except if not declared in the contract leaving the business with just the rental fee and other minor costs such as electricity to run the business. This will be less expensive because the building money has been paid already. Disadvantages The disadvantage of this is that there can be problems when leasing properties at the end of the leasing terms as the company may have to leave the property except they have come to negation of extended time. Leasing is only a temporary solution to run a business from and at the end of the day the property is never yours. Inheritance This is the tradition of passing on property, titles, debts, and obligations upon the death of an individual. This has long played and an extremely vital role in human societies. Advantage The advantage of this is that it is free Disadvantage The disadvantage is that the money or wealth might not be enough. ...read more.

Conclusion

to an eligible applicant to accomplish some public purpose. Advantage The advantage of grants is that the money is given to the business to use to support them with their business. This is an advantage of this source of finance as it supports a business so that it can function effectively. Disadvantage The disadvantage of grants is the requirements and rules to be meet to qualify for the payment. Asset Sales This is another source of finance whereby previous products which have been purchased by a business can be sold in order to make money for a businesses expansion or ordering of new products that are in season. Sales of assets normally occur near the end of the year like near Christmas time or early in the year in January. Advantage The advantage of this is that you could use the profit made to invest into another asset. Another advantage of asset sales is that stock that is not needed by the business will be moved through this action which will give room within stock rooms for new potential products and it is also a prompt way to obtain money. Disadvantage The disadvantage of this is that the value might not be obtained from the sale. Another disadvantage is that the business will be selling their products for a cheaper price which will result in them not maximising their profit to its original target. Sales of assets can also be seen as a way of shrinking businesses financial status as they are selling their products for a cheaper price which means they are not maximising their cash income. ...read more.

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