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Sources of Finance

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Sources of finance This assignment will look at the different sources of finance that are available to a small business or a big company. With each source of finance listed the report will assess the implications that can arise and along with this the report will look at the cost to the business to taking a certain source of finance. All businesses need short-term finance from the very beginning to start up the business and to cover day-to-day running costs. This provides the business with working capital. However businesses also need long-term capital to help them to grow and expand, and this is paid back over a number of years. ...read more.


Companies often sell off assets such as premises or any other equipment. Overdrafts An overdraft allows a business to withdraw more money from its current bank account than it contains, up to a certain limit agreed previously with the bank manager. Bank loans These are the main external sources of finance, they are usually fixed amount for any period of time from 1- 20 years. Regular payments of the sum borrowed plus interest will have to be paid. Their asset will require collateral (security) just in case the owner cannot make repayments back to the bank so their property will be taken away. Interest payments can be calculated using this formula: Amount borrowed X percentage rate = amount of interest For example if you borrowed a �2000 for a year at an interest rate of 6%, the interest would be �60 (�1000/100*6 = �60). ...read more.


Some local Council also give financial assistance to firms that new job in their area. Selling shares Private companies cannot sell shares to the public but they can sell to friends and families. PLC will have a benefit of this as they can raise large amounts of capital and invest what they have in the company. Going public If a medium sized company wants to raise greater amounts of money for expansion, it could go public, or become a PLC. However it is very expensive to set up a PLC though. Debentures Money is lent to a PLC for a fixed period of time at a fixed rate of interest. At the end, the money must be repaid. Interest will have to be paid even if the firm does not make a profit. ...read more.

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