Describe sources of internal and external finance for a selected business.

External sources:

External sources are sources that come from outside like if a business has been financed by outer sources.

• Banks:

Banks are able to offer loans, business accounts, commercial mortgages and overdraft facilities based on the business plan. Interest is payable based on the predicted risk. Some security will need to be provided, for example, assets such as a house. Bank can provide loan to tesco.

• Building societies:

Building societies are also able to offer loans, business accounts, commercial mortgages and overdraft facilities based on the business plan. Interest is payable based on the risk of the venture. As with banks, some security will need to be provided, such as assets. Tesco has a good history so building socities can provide loan to tesco.

• Hire purchase:

Hire purchase means that resources can be used by the business while they are being paid for to a finance company. Until the last payment is made on the agreement, the goods are not owned by the business, and if payments are not made the finance company can take them back. Tesco cann have hire purchase.

• Leasing:

Leasing means that a business can make use of resources and pay to use them every month. The business does not own the goods at the end of the lease. Leasing is often used by companies for vehicles.

• Factoring:

Debt factoring means that then business sells its debts to another company and receives and some of the money immediately. The debt factoring company collects the debts and takes a percentage cut for the service.

• Share issue:

Issuing shares is a good way for many companies to raise finance. Small businesses will issue shares when they move from being a sole trader/ partnership to become limited (ltd). The shares are not offered publicly but business contacts, friends or family can buy them. Limited companies are then able to sell shares on the stock exchange if they become public limited companies (PLC). This is known as floating on the stock exchange. Sometimes large PLCs will have a new share issue as well when they want to invest in a large project and these are also floated on the stock exchange. Tesco can issue shares.

• Government grants and Prince’s Trust loans and grants:

These are available from the EU, national government and local government. A grant is money given to an entrepreneur that does not have to be paid back and the amount of that money will depend on where it is coming from(for more information, see ). Businesses run by people between the age of 18 and 30 can apply for low-interest loans from the Prince’s Trust ().  Tesco can have government grants and loans as it is an old business and has a very good history.