Source of Finance
Keep a Personal Checklist:
Distinguish between internal and external sources of finance.
State three sources of internal finance and five sources of external finance.
What are the differences between share capital and loan capital?
What is the difference between short-, medium- and long-term finance?
What factors do managers need to decide on before choosing their source(s) of finance?
BE A CRITICAL THINKER: [AO3]
Examine the appropriateness of short- or long-term sources of finance for a given situation
Source of Finance
Choosing the right source of finance to fund a business start-up, business growth, or the daily operations is another one of those tough decision the business owners and managers have to face at various stages of the business.
Let's hear from two business angels share an opinion (among many) on getting a loan when you start a business:
Barbara Corcoran, Entrepreneur & Shark says:
"Building a business on your own dime means you're the only one in charge...Corcoran calls taking on an investor "a terrible idea." She explains that once you've allowed an investor to own part of your business and their money is in your business account, you have someone telling you what they envision your business to be" (George, 2023, para. 1) Link
A business starts when you do business, not on paper
Mark Cuban, Entrepreneur & Business Angel says:
"99% of small businesses - you can start with next to no capital. It's more about effort" (Hoddinott, ND para. 3) Link
According to Mr. Mark, there are many uncertainties in starting a business, yet one certainty is that you'll have to pay back a loan.
Loans are therefore more suitable for business growth.
Internal & External Source of Finance
At various stages of the business, there are many ways to raise funds
Among the most commonly used sources of finance for businesses are: Retained profits (internal) & Bank loans, overdraft, share capital and trade creditor (external)
Retained Profits
Sales of Assets
Overdraft & Loan Capital
Trade Credits
Crowdfunding
Leasing
Business Angels
Innovative and modern ways to raise funds
