Sources of financing expansion

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Unit 7

Activity 1

Assignment Title: Sources of Finance

Sources of financing expansion

There are different forms of financing a business can use for expansion. Their includes personal capital, hire purchase, retained profits, trade credit, depreciation, credit cards, sale of assets, share issues, mortgage, debentures, bank loan, venture capitalists, bank over draft, government assistants, leasing and debt factory.

All their sources of financing expansion depend on the type of business, and the sort of growth the business is thinking of transforming into.  In this booklet I will be analyse all the different source of financing expansion a sole trader can make use of when thinking of expanding their business, as well as the different source of financing expansion that private limited companies can make use of when thinking of expanding their business.  

Sole trader

Sole trader’s options of financing expansion are limited as owners have liability for all the companies’ debts. The methods of expansion I will advise you on in expansion of a sole trader includes taking a bank loan, hire purchase, trade credit, sales of asset, personal capital, mortgage, leasing, retained profits, debenture, credit card, and government assistants. With all these forms of financing your expansion comes with their advantages and disadvantages.

  • Personal Capital:

Personal capital is quite simply the amounts of money that a business person, partner or shareholder has at their disposal to do with as they wish. If that person uses their savings to invest in their own or another business, then this source of finance comes under the heading of personal savings. This is good from of financing a business expansion for all types of businesses as it enables them to use their own money and working on your own proposal. With this come advantages and advantages of using this source.

Firstly advantages: no worry about repayment, no interest rates, and also helps contributes to other source of financing expansion, for example banks will be convinced that you will get their money back as you have your money in the business.

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Secondly disadvantages: if the business is unsuccessful it could mean you loss all your money, the owner have to work hard/ overtime for success as s/he have invested vast amount of money n the business, and also when invested money often quickly turned into long term fixed assets which cannot be readily converted into cash.

  • Hire Purchase

Hire Purchase is a method of obtain assets without having to invest the full amount in buying them. Typically, a hire purchase agreement allows the hire purchaser sole use of an asset for a period after which they have the right to ...

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