In this essay we will be looking at different sources of finance available for different type of business. Also will be looking at the definitions of different type of sources of finance, the advantages, disadvantages and also giving reasons to why different sources of finance was chosen for the given case studies.
Types of sources of finance
Bank Loan – is a long term loan and will often be for large amount of money for starting up a business or to expanding. Business will agree with the bank to pay installment monthly fees with interest charge. Long term Loan – is a loan which is often being for a large sum of money and usually the payment period is more than 15 years. Usually is used for starting up new business, for expansion, buying new fixed assets for the business. Loans are usually paid on a monthly installments plus agreed fixed interest charge. Short term loan – is loan that is for a small amount within the period of 5 years, plus agreed interest charge. Interest – Banks provide services by lending money in the form of overdrafts and loans and bank will charge for this service. The extra charge is called interest, these are the profit made. The Bank of England sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy. (Source form www.bankofengland.co.uk)
Retained earnings – also called “Organic growth” growth generated through the development and expansion of the business, these are profit made by company. These can be achieved through: •
Generating increasing sales – increasing revenue to impact on overall profit level...
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