factors affecting sources of finance Flashcards
Pay back term
The quicker the payback term, the less interest the organisation will pay on borrowing.
Short-term finance required
An organisation may only need finance for a short term, perhaps to cover a cash-flow problem, so an overdraft could be used
Size and type of organisation
Organisations are restricted to certain sources of finance, for example, a public sector organisation cannot sell shares and has to rely on government funding
Long-term finance required
An organisation may need long-term finance, perhaps to fund the purchase of property, so would choose a mortgage
interest rates
An organisation will choose the finance with the lowest interest rate available.
Often a hire purchase agreement will have a lower interest rate than a bank loan so would be selected to keep the costs of the financed as low as possible