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Business Finance. There are a number of sources of finance, which businesses will need in order to start up a new business, make their business expand and buying materials required for their business.

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AO1 Unit 3 Finance There are a number of sources of finance, which businesses will need in order to start up a new business, make their business expand and buying materials required for their business. - Mortgage: A Mortgage is a source of finance that is used to help fund purchase of a property. This is a very long-term method of borrowing money which requires some form of security. The money will later have to be paid back to the bank along with interest. If this money is not paid back there are people who are known as bailiffs who will come to your house to repossess the belongings needed to pay off the mortgage taken out. Mortgages can be borrowed by Company, Building society or Bank. Advantages The Advantages of this method are that the interest charges tend to be lower than other sources of finance. Also you can take out the money for long period of time, this can be easier for a business because it'll give them a chance to set up and keep the business running and then later on if the business becomes successful and makes a lot of money, and they can then pay off the mortgage which was taken out. ...read more.


In addition there are some grants linked to specific geographical areas which are in a desperate need of financial renewal. Advantages Advantages are that those who receive government grants find it easier to raise money from other government and private sources. Also an advantage is that you are getting help from the government during times in which you need support. Also these grants can be impressive and give your business immediate credibility and public exposure. And one of the most important advantages is that you don't have to pay the money back, most importantly no interest. Disadvantages Preparing government grant proposals usually require hard work and tons of research and planning. Government grants come with requirements to spend the money according to a difficult set of regulations and laws that could increase your bottom line as you may need the knowledge of an attorney, accountant or any other professional. Another disadvantage is that you aren't getting enough funds to start up your business, also you are not getting great amounts of money for your business, you only get a reasonable amount of funds which are just enough to buy materials and resources for you business. ...read more.


Also during the process of a loan, relationships can be broken. And any problem in the agreement could cause issues in personal relationships which could be a big problem as you won't be able to take a loan of them again or you can't seek any further financial support from them. -Overdraft: This method charges the business interest due to the amount of days the money is borrowed, because the money from an overdraft belongs to the bank. This method lets you overdraw extra money from the bank; they are a good backup to guarantee you can pay your bills even when you have not yet received your debit payments. Advantages Advantages of an overdraft are that it is flexible, because it is there when you need it, a costs nothing apart from a possible small fee. . It allows you to make necessary payments whilst catching up your own payments, and helps to continue cash flow. You only need to borrow what you need at the time. Quick - Overdrafts are easy and quick to arrange, providing a good cashflow backup with the minimum of fuss. ?? ?? ?? ?? AO1 Finance Unit 3 Umerah Bhatti 12BCG Mr Burns 20/09/2010 Page 1 ...read more.

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The writer is confused over the difference between a loan and an investment in the business. The disadvantages of the owners capital discussed above are actually disadvantages of getting new shareholders and this is not otherwise discussed. Other sources of finance are ignored e.g. venture capitalists who specialise in investing in new businesses

Marked by teacher David Salter 12/02/2012

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