Lara K.
Business 12B

12th October 2008

Grade 12

Sources of Finance Homework Task

For the following items below, decide which form of external finance is suitable and why? (You may have to decide between more than one, evaluate the best solution)


  1. An unexpected bill for repair of machinery. It must be paid immediately. The business has insufficient funds in its bank account.

The company could take advantage of trade credit because they would be able to pay for goods and services and it is an interest free way of raising finance. If the company delays the payment of bills than it could result in poor business relations, which could cause suppliers to avoid working with that particular company. Another external source of finance that the company could use is bank overdraft. These are flexible and interest is only paid when the account is overdrawn. Even though this would be the case, the company needs to pay the unexpected bill immediately even if the effect was that they would need to pay interest on that money.

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  1. 5 new delivery vehicles need to be purchased for the company.

The company could take use the external short term source of finance leasing. This would allow them to use the delivery vehicles in return for regular payment. Usually, the maintenance and repair costs are not the responsibility of the user and large sums of money will not be needed. However, if the company need the delivery vehicles on a regular basis and are not just required occasionally, then the company should consider taking a bank loan even though this would mean that the company needs ...

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