Sources of Finance for a Business Start-Up
For this task I will be considering the sources of finance I will need for my company.
Why might a business require finance?
A business may require finance because they can either:
• Be setting up a new business and they do not have enough money to start up.
• They may need new equipment to help make the business expand and make more profit.
• Or they may even want to replace old machinery.
• They may want to move there store to a better location that might benefit there company more.
• Or they may want to take over another company.
Additional finance can help a company keep trading while it is waiting for it payments for its last sales. It allows a business to meet ongoing costs of operation or help them to expand.
Sources of finance can be put into two categories Internal and External. Internal finance is money that comes from inside of a business or any profit that you have made from your business and external is money that you get from outside of the business. For internal finance you can retain profit, reduce stock levels or sell you old assets but for external finance you have more choices you can borrow money from family or friends to help you out, you can get a grant from the princes trust but this will only happen if you have a good idea for what you need the money for and you can get a loan from the bank. The difference between a loan and a grant is a loan you don’t have to pay back but a grant you do because it is from the bank. There are other types of finance:
• Trade credit
• Hire purchase
• Share issue
• Taking a new partner
The most appropriate source of finance for my business is:
Grant- a grant is given to you by the Prince’s Trust. You will only receive this if they think you have a good ides for a business. Grants are similar to loans but grants are better because you don’t have to pay back. This source of finance is good for any business simply for the fact you don’t have to pay back. The drawbacks of getting a grant are very minimal it could even be non-existent. One complaint may be the long application progress how ever it will no longer be an issue when you are rewarded with free money. This resource is very appropriate for my business because I will have to be buying high quality cars.
Loan- A bank loan is an amount of money given to you from the bank that is usually only given to you for a valuable reason and for a certain period of time. This will only be suitable for my business when I am first starting up. Not only could it be use for that but it can be used for the development of your company. When my business makes enough profit I will give back the money to the bank. The disadvantage of getting a loan is if your business doesn’t do very well how will you be able to pay the bank back. The level of loan repayments will be calculated by the bank when the loan has been agreed. Usually the first payment will be a month after you receive the loan. This could be a disadvantage because you may not make enough money in the first month so this could slow down the progress of the business. But it all depend on how much money you are expected to pay a month.
Taking a new partner