Sources of Finance Flashcards
Personal savings/invest more equity
Money invested into the business by the owner.
Personal savings/invest more equity advantages
The money does not have to be repaid.
A fast way of obtaining cash for the business.
Personal savings/invest more equity disadvantages
Puts the owner at greater risk if the business fails.
Bank loan
A sum of money borrowed from the bank which must be paid back monthly with interest over an agreed number of years.
Bank loan advantages
Relatively simple to arrange.
Repayments can be made monthly and spread over several years e.g. 3, 5, 7, 10 years.
You know exactly how much will be repaid each month and this will not change over time.
Bank loan disadvantages
The loan must be repaid monthly with interest over several years.
If interest rates are high when the loan is arranged then this could be an expensive way to raise finance.
Mortgage
A loan specificly for the purchase of property. It must be paid back monthly with interest.
Mortgage advantages
Repayments can be spread over a long period of time e.g. 25 years.
A large amount of money can be obtained relatively quickly.
No loss of control of the business.
Mortgage disadvantages
A mortgage must be repaid with interest.
The amount repaid is far more than the amount borrowed in the first place.
Grant
A sum of money received from the Local Council or the government which does not have to be paid back. You must apply for a grant.
Grant advantages
A grant does not have to be repaid.
No interest payments have to be made on a grant.
Grant disadvantages
May be difficult to obtain.
May take a long time to arrange.
There may be restrictions as to what the money can be used for and certain requirements might have to be met.
Retained profits
Profits left over at the end of the year which are kept in the business.
Retained profits advantages
Does not have to be repaid.
No interest is payable.
Retained profits disadvantages
Retained profits may be not enough finance therefore other sources are still needed.
