factors affecting sources of finance

Question 1

Pay back term

Answer 1

The quicker the payback term, the less interest the organisation will pay on borrowing.

Question 2

Short-term finance required

Answer 2

An organisation may only need finance for a short term, perhaps to cover a cash-flow problem, so an overdraft could be used

Question 3

Size and type of organisation

Answer 3

Organisations are restricted to certain sources of finance, for example, a public sector organisation cannot sell shares and has to rely on government funding

Question 4

Long-term finance required

Answer 4

An organisation may need long-term finance, perhaps to fund the purchase of property, so would choose a mortgage

Question 5

interest rates

Answer 5

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