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 advantage is for businesses, as the business can borrow enough money to fund the expansion of the business. A disadvantage of using this source of finance is that interest is charged which means that the business would be adding to expenses even further.
Grants
Grants help with business development and is given by the government, A grant will allow a companay to raise finance which is given in the form of government help. An advantage using this source of finance is that the money given to the business is ussaly free. An diasadvantage of using this source of finance is that the grant given to the business have to compile with certain rules and regulations.
Venture Capitalists
A venture capitalist is an institution that is willing to lend you capital to businesses which other financial institutions / investors might consider too risky. Usually the Venture Capital firm will require shares in the business and influence in the running of the company at a strategic level, to protect their investments. The advantage of this source of finance is that it is an easy way of raising finance when nobody else will help. The disadvantage of this source of finance is that the business will loose control, because of the constant influence in the running of the company by the venture capitalists.
Savings
This is the businesses own savings, an advantage of using this source of finance is that the money is available to the business quickly, and is available readily to the business, another great advantage is that because it’s the businesses own savings it means it is readily available to use as it is free. A disadvantage of using this source of finance is that there may not be enough money saved up by the business and it could increase the risk that they spend all of their money for expansion and not having any leftover when a cash flow problem arrives.
Friends and Families
This finance is provided by family and friends, the advantage of borrowing from families and friends is that they are likely to lend some cash, an disadvantages of asking friends and family is that they may not have enough cash to fund the expansion, and also if they don’t pay back within the agreed time, then it could cause serious tension or falling out.
Inheritance
This source of finance is usually used when the business may have inherited finance, a great advantage of using this source of finance is that the inherited money is free, and they don’t need to back anyone. A disadvantage of this source of finance is that Realistically this source of finance is rarely available as the chances of being inherited are quite low. Whereas with family and friends it may be possible however problems arise quite fairly quickly as the lender may need the funds back and the barrower may not have it at the moment.
Leasing (renting)
Leasing is where the business buys an asset and then hires or leases it to another business (the lessee) for a fee in terms of rent over a fixed period of time. An advantage of this source of finance is that it can cut costs and it will allow the business to pay for what was borrowed instead of purchasing the product itself, Another advantage is that service maintenance is all usually all inclusive as part of the deal, another advantage of it is that barrowing the equipment is flexible which means it can be used over an agreed time, whether it being for long term or short-term use the barrower can use it for as long as needed. A disadvantage is that the assets leased are never theirs.
Trade Credit
Trade credit is a very good source of finance method, its when an suplier provides goods or services to the business with an agreement to bill them later. Trade credit is the largest use of capital for a majority of types of businesses and is a critical source of capital for a majority of all businesses. An advantage of it is that the business can have the goods and services before paying for them whilst allowing time for the business to generate money for them selves and paying for other expenses. An disadvantage of it is that it goves the business time in which to pay for the goods or iterms purchased whilst allowing the business to still generate capital.
Shares
Selling shares in a company is one way of raising long-term finance for a business. This is also known as equity finance. The advantage of equity finance is that you don't have to repay the finance or pay interest on it as you would with an overdraft or bank loan. Shares represent ownership in a company. When an individual buys shares in a company, they become one of the owners of the business. This entitles them to a share of the distributed profits of the company, known as dividends. However the disadvantage of it is that when selling shares someone may come along and build up on shares thierfore takeing responsibily of some part or whole of the company.