Sources of finance
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शिक्षकों के लिए: Sources of finance (Business Studies, Finance) के लिए इस्तेमाल के लिए तैयार लेसन स्लाइड्स, रिवीज़न नोट्स — इन्हें अपने लेसन में इस्तेमाल करें, या टॉपिक को एक इंटरैक्टिव क्लास एक्टिविटी की तरह चलाएं जिसे आपके शिक्षार्थी लाइव गेम की तरह खेलें।
लेसन नोट्स
Short-term finance
- Short-term working-capital arrangements include an approved overdraft, agreed supplier credit and suitable invoice finance. Trade credit allows later payment by agreement; unagreed late payment can damage supply relationships and create costs.
- Factoring advances part of eligible invoices and normally includes collection services. It brings cash forward rather than creating new sales revenue. Fees, charges, invoice eligibility and recourse or bad-debt protection depend on the contract.
Working-capital finance by agreement
Long-term finance
- Loans have agreed repayment terms that may be short, medium or long term, usually with interest and possibly security or fees. A mortgage is secured on property, which may be at risk if obligations are not met. Do not assume all borrowing has fixed interest or identical instalments.
- Rental-style leasing gives use of equipment for agreed payments and may require an initial rental. Ownership and end options depend on the contract. Hire purchase usually provides use during instalments and ownership only when its conditions and any final purchase payment are met. Duration must fit the actual contract and asset need.
Use, buy or borrow for an asset
Internal sources
- Retained profit comes from profits kept rather than distributed; selling an unused business asset can also release internal funds. Reported retained profit may already have financed inventory or equipment, so it is not automatically cash available to spend. Internal funds still have an opportunity cost.
- Owner money is another possible funding source, especially before trading; board and textbook conventions about its internal/external label differ. State its origin clearly and follow the assessed convention. Avoid unnecessary future stock purchases to preserve cash; existing stock releases cash only when sold and collected.
Check whether funds are available
External sources
- External sources include debt, new company equity, eligible grants, suitable crowdfunding, business angels and venture capital. The amount and eligibility depend on the business. A sole trader cannot issue company shares without changing its structure; a private company cannot offer its shares to the general public.
- A new issue raises money for the company, while selling an existing share between investors normally pays the seller. Issuing additional shares can dilute existing holdings and voting power depending on participation and share rights. Angels invest personal funds; venture capital commonly seeks high-growth equity opportunities.
- Crowdfunding can be donation-, reward-, loan- or equity-based. Grants normally avoid routine repayment if conditions are met but may restrict spending or be recovered for breach. Neither crowdfunding nor grants should be assumed to provide unrestricted free money.
External funding creates obligations
Choosing finance
- Compare purpose, amount, timing, total costs, affordability, security, ownership effects, risk and actual availability. A short-lived gap and a five-year asset need may call for different arrangements. Test repayments against a cash forecast rather than selecting a source by name alone.
- Fictional bakery: £8,000 cash minus a required £5,000 trading reserve leaves £3,000 available towards a £6,000 oven, so the gap is £3,000. Compare approved borrowing, hire purchase or leasing according to terms and the five-year use. Approval and affordability are assumptions to investigate, not guarantees.
A fictional oven funding gap
Matching finance
- An approved overdraft may bridge a short timing gap. Longer-lived premises or machinery may justify borrowing or other finance with an appropriate duration; equity is only available to an appropriate ownership structure and has its own costs. No source is automatically best for every business.
- Equipment for a temporary project may suit a rental-style arrangement if the minimum term and return conditions fit. A long-use oven may suit purchase using available cash plus approved borrowing, hire purchase, or a suitable lease. Compare total payments, reserves, maintenance and ownership needs.
Interest and risk
- Debt normally requires repayments and interest regardless of whether a period is profitable. Security or guarantees may add risk. Ordinary equity does not have routine loan-style repayment, but investors acquire rights and distributions depend on performance and decisions; equity is not costless.
- In the fictional factoring example, £10,000 × 80% = £8,000 advanced. After full customer payment, remaining £2,000 minus a £200 total fee gives £1,800. Overall cash is £9,800 before any other charges. Default risk and collection responsibilities depend on the terms.
A fictional factoring settlement
स्लाइड्स
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प्रैक्टिस सवाल
फ्री प्रीव्यू — 36 में से 8 सवाल। सभी देखने के लिए साइन अप करें।
1.What is finance for a business?
Easy- Amoney to start, run or grow it
- Ba type of tax
- Ca wage
- Da customer
2.What is an overdraft?
Easy- Aa savings account
- Ba share
- Ca grant
- Dborrowing through a bank account up to an agreed limit
3.What is trade credit?
Easy- Aa bank loan
- Ba share issue
- Creceiving goods or services now and paying later by agreement
- Dpaying suppliers early
4.What is a bank loan?
Easy- Ashares
- Bborrowed money repaid with interest
- Ca gift
- Da grant
5.What is a mortgage?
Easy- Aa loan secured on property
- Ba short overdraft
- Ca grant
- Dshares
6.What is leasing?
Easy- Abuying equipment outright
- Bselling equipment
- Cborrowing shares
- Dusing an asset in return for agreed rental payments
7.What is hire purchase?
Easy- Arenting only
- Ba grant
- Cusing an asset while paying instalments, with ownership after the purchase conditions are met
- Dbuying with one payment
8.What is factoring?
Easy- Aa loan
- Breceiving an advance against eligible invoices, with collection services and fees
- Cbuying invoices
- Dpaying suppliers
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