Sources Of Finance

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A run through the main sources of finance for business organisations. Useful for Standard Grade Business Management and Higher Business Management

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  • Sources Of Finance

    1. 1. Sources of Finance
    2. 2. Bank Loans <ul><li>Money given from banks </li></ul><ul><li>Paid back with interest </li></ul><ul><li>Usually easily available </li></ul>
    3. 3. Savings <ul><li>The owner invests more of his personal cash </li></ul><ul><li>No loss of control </li></ul><ul><li>Limited amount </li></ul>
    4. 4. Leasing <ul><li>Renting of vehicles or equipment </li></ul><ul><li>More expensive in the long term than buying the asset </li></ul><ul><li>Asset is replaced when obsolete </li></ul><ul><li>Spread payments </li></ul>
    5. 5. Share Issue <ul><li>Dividends have to be paid to shareholders </li></ul><ul><li>Loss of control possible </li></ul><ul><li>Where shares are sold to investors allowing very large sums to be raised without incurring interest </li></ul>
    6. 6. Debentures <ul><li>A long term loan to plcs </li></ul><ul><li>Debenture holders receive fixed interest </li></ul><ul><li>Debenture holders receive the money lent back </li></ul><ul><li>No control of the organisation is lost </li></ul>
    7. 7. Venture Capitalists <ul><li>lend money when banks think it is too risky </li></ul><ul><li>Large amounts lent but interest is high </li></ul><ul><li>Part ownership often needed in exchange for finance (% of business) </li></ul>
    8. 8. Hire Purchase <ul><li>A deposit is required and the rest of the price is paid in installments </li></ul><ul><li>Ownership remains with the finance company until the last installment is made </li></ul>
    9. 9. Overdraft <ul><li>A facility arranged with banks to allow you to borrow more than you have in your account </li></ul><ul><li>Has to be arranged </li></ul><ul><li>Can be refused </li></ul><ul><li>Can incur interest </li></ul>
    10. 10. Mortgage <ul><li>A large sum of money borrowed from a bank or building society to </li></ul><ul><li>purchase property </li></ul><ul><li>Monthly repayments required (interest) </li></ul><ul><li>Long term borrowing eg 25 years </li></ul>
    11. 11. Grant <ul><li>Some of the money paid by eg Local Authority or Government </li></ul><ul><li>No need to repay a grant </li></ul><ul><li>May be given if organisation is creating jobs in an area of high </li></ul><ul><li>unemployment etc </li></ul>
    12. 12. Divestment <ul><li>Equipment or property which is no longer required is sold off to raise cash </li></ul>
    13. 13. Retained Profit <ul><li>Profits made are not distributed to the owners but kept back for reinvestment </li></ul>
    14. 14. Factoring <ul><li>Factors are usually banks who will give you 80% of the debt owed up front </li></ul><ul><li>They then chase the other 20% for you and when it is paid back they charge a fee </li></ul>
    15. 15. Additional Sources of Finance <ul><li>LEC – Scottish Enterprise Renfrewshire </li></ul><ul><li>Local authorities – East Renfrewshire Council </li></ul><ul><li>Government Partnerships – Business Gateway </li></ul><ul><li>Grants and allowances – Repayable Grants, Soft Loans, Subsidies </li></ul><ul><li>EU grants – Regional Development Fund & Social Fund </li></ul>
    16. 16. <ul><li>More slides and videos on these topics will be found at: </li></ul><ul><li>www.mrmcgowan.blogspot.com </li></ul><ul><li>For the following subjects: </li></ul><ul><li>Accounting & Finance </li></ul><ul><li>Administration </li></ul><ul><li>Business Management </li></ul>

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