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

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

Businesses need finance (funds), there are many reasons why businesses need finance usually to expand and grow, both in the short term, and long term, to expand, operate or just plain survive.

Assets sale

Companies may choose or be forced to sell-off assets of the business in order to raise finance. However a disadvantage of selling assets is that it can be very destructive, it would be like selling off the business and splitting the business into pieces.

Overdrafts

An overdraft allows the business to overdraw from there account as a means to raise finance, an advantage of businesses using this source of finance is that an overdraft can be arranged fairly quickly and offer a level of flexibility with regard to the amount borrowed at any time, which means the business can overdraw the exact money and pay for what is only overdrawn whilst interest is only paid when the account is overdrawn. A disadvantage of this source of finance is that it is the first thing that gets paid off before bills, staff, etc. another disadvantage of using this source of finance is that although it is source of immediate finance its also quite costly in terms of paying interest, interest usually set at 10% this is quite costly and being overdrawn should be avoided.

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Loans

Loans is very similar to overdrafts, but the loans normally involve higher rates of interest, an advantage/disadvantage of this source of finance is that loans are inflexible, this means the business would have to place regular instalment payments in order to pay off the loan. Another disadvantage is that the business may have to provide details of security.

Mortgages

This type of finance is similar to bank loans except the time period as to when the cash has to be paid back is of a greater length and the sum of money is larger which an ...

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