There are several ways for businesses to obtain financing both internally and externally. Internally, businesses can generate financing through reinvesting profits, selling assets, or an owner investing savings. Externally, common sources include loans, overdrafts, leasing agreements, trade credit, issuing shares or debentures, small business loans, and sometimes grants. A business must consider the costs, risks, and benefits of each financing option depending on the amount needed and what the money will be used for.

1. How do Businesses Start?

3. some famous people who have shown “enterprise” … Richard Branson Duncan Bannatyne Using the Internet, see what you can find out about these entrepreneurs and their businesses Anita Roddick Michelle Mone Rachel Elnaugh

6. What is needed to start a new business? These are known as the Factors of Production land labour capital enterprise

7. Factors of Production LAND means the natural resources which businesses use, eg plot of land, coal, diamonds, forest, water, wood

8. Factors of Production LABOUR means the workforce of a business

9. Factors of Production CAPITAL means the tools, machinery and equipment that a business owns or controls. It also includes the finance that the owner has invested in the business

10. Factors of Production ENTERPRISE means the business ideas that an entrepreneur or owner has on how to use land, labour and capital in his/her business

14. Why produce a business plan? Sometimes the person starting up in business will not have all the finance they need. Therefore a business plan may convince someone (possibly a bank manager) to lend the business initial start-up cash. The Business Plan shows that the person starting up the business has taken time to consider their idea.

17. Where does the money come from to finance a business?

22. Issuing Shares This is an option for Limited Companies and can raise very large amounts. If they require more capital then they may be able to issue shares. Shareholders have limited liability and receive an annual dividend in return for their investment. However, the cost of issuing shares can be expensive.

23. Issuing Debentures This is a source of finance used by plcs. A debenture is a type of long term loan. Debenture holders (the people who have loaned the money) receive fixed interest over the period of the loan and then receive the full amount of the loan back at the end (eg after 25 years).

24. Loans Loans are usually a medium term form of financing a business. The bank (or other lender) agrees to lend an amount of money for a specific period of time, with the borrower repaying it back in instalments. The borrower must remember that interest will be repayable on any amount borrowed.

25. Hire Purchase This is when a business buys assets now and pays for them later. It is a common way of purchasing new vehicles. The business will pay a deposit with the balance being repaid in equal instalments. This results in the cost of the asset being spread, making it easier to afford. However, the asset is not owned fully by the business until it is fully paid, and interest rates can be high. If payments are not made the asset may be repossessed by the Hire Purchase Company

26. Overdrafts Overdrafts are a short term source of finance. The customer arranges to take out more from their bank account than they have in it. It is simple to arrange and the amount of overdraft varies. Interest is only charged on the amount overdrawn for the actual number of days overdrawn. It can however work out expensive if used for a long period of time.

27. Leasing Agreements A business may rent their premises, equipment or vehicles from a leasing company. By leasing the business never owns the asset however it can be used to avoid major expenditure on assets. At the end of the lease, the asset can be changed with a new model (usually ideal for vehicles and computing equipment)

28. Trade Credit Businesses will receive stock from suppliers now and pay for them at a later date (usually 30 days). This is useful for new businesses that do not have a steady flow of income. However discount for prompt payment may be lost.

29. Grants Some businesses receive a grant from either central or local government, the European Union or Enterprise companies. This may be an incentive for organisations to locate in certain parts of the country needing regenerated because of high unemployment etc. They are one off payments.

30. Small Business Loans Guarantee Scheme This is a government backed scheme that guarantees that 80% of a business loan will be paid back by the government if the business defaults (fails to make their payments)