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Sources of financing expansion

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Introduction

Sources of financing expansion There are different forms of financing a business can use for expansion. Their includes personal capital, hire purchase, retained profits, trade credit, depreciation, credit cards, sale of assets, share issues, mortgage, debentures, bank loan, venture capitalists, bank over draft, government assistants, leasing and debt factory. All their sources of financing expansion depend on the type of business, and the sort of growth the business is thinking of transforming into. In this booklet I will be analyse all the different source of financing expansion a sole trader can make use of when thinking of expanding their business, as well as the different source of financing expansion that private limited companies can make use of when thinking of expanding their business. Sole trader Sole trader's options of financing expansion are limited as owners have liability for all the companies' debts. The methods of expansion I will advise you on in expansion of a sole trader includes taking a bank loan, hire purchase, trade credit, sales of asset, personal capital, mortgage, leasing, retained profits, debenture, credit card, and government assistants. With all these forms of financing your expansion comes with their advantages and disadvantages. * Personal Capital: Personal capital is quite simply the amounts of money that a business person, partner or shareholder has at their disposal to do with as they wish. ...read more.

Middle

Why is this a form of expansion? Well, if we manage your creditors carefully they can use the trade credit in place to provide to finance other parts of business. In using this source comes its advantages and disadvantages. Firstly advantages: builds a good relations with suppliers, enables the business to trade on credit as you pay for goods at the agreed time period, and also gives the business good reputation among creditors as more business will be offering you to trade on credit with them. Secondly disadvantages: the business must have a good credit history as well as financial * Depreciation Depreciation is a fixed asset reduced in value over its useful life due to wear and tear. This a good from of expansion as the business will pay less on the asset needed, which will enable them to concentrate on other aspect of the business. With this source of financing expansion comes it advantages and disadvantages Firstly advantages: the business spend less on assets, the business get the use of asset immediately as wells agreements are easily negotiated. Secondly disadvantages: the asset might be old and not to be used in the long term development, and as the business is looking to expand it this might not be a good idea. ...read more.

Conclusion

* Debentures: Debentures are loans that are usually secured and are said to have either fixed or floating charges with them. A secured debenture is one that is specifically tied to the financing of a particular asset such as a building or a machine. A debenture issued with a floating charge means that the interest rate is not fixed and such debentures are usually not tied to any specific asset such as land or buildings. This is a good form or financing expansion as it enables business to raise funds quickly in a short period of time. This is an ideal form of financing expansion for every business from a sole trader to a PLC. Advantages and disadvantages of using this source. Advantages: quick way of raising funds, as it is long term process businesses don't have to worry about repayments. Disadvantages: interest rate on borrowing might go up due to inflation, business can losses assets if they fail on repayment agreement. * Bank loan: * Venture capitalist: * Bank overdraft: * Government assistants: * Leasing: * Debt factory: Sole Trader Partnership Private Limited Companies Public Limited Companies Personal Capital Hire Purchase Retained Profits Trade Credit Depreciation Credit Cards Sale of Assets Share Issues Mortgage Debentures Bank loan Bank Overdraft Government Assistants Leasing Debt Factory Venture Capitalists ?? ?? ?? ?? Unit 7 Activity 1 Assignment Title: Sources of Finance ...read more.

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