identification of sources_of_finance

Jun 27th, 2015
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Abilene Christian University
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Raising capital to launch or expand a business is a challenge. Many entrepreneurs are caught in the “credit crunch.” Financing needs in the $100,000 to $3 million may be the toughest to fill.

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Sources of financeSources of financeThere are two types of finance:InternalSources of Finance andGrowthExternalSources of FinanceInternal Sources of Finance andGrowthOrganicgrowth growth generated through thedevelopment and expansion of the business itself. Canbe achieved through:Generatingincreasing sales increasing revenue toimpact on overall profit levelsUse of retained profit used to reinvest in thebusinessSaleof assets can be a double edged sword reduces capacity?External Sources of FinanceLongTerm may be paid backafter many years or not at all!ShortTerm used to coverfluctuations in cash flowInorganicGrowth generated by acquisitiongrowthLong Term SorcesShares (Shareholders are part owners of a company)Ordinary Shares (Equities):Ordinary shareholders have voting rightsDividend can varyLast to be paid back in event of collapseShare price varies with trade on stock exchangePreference Shares:Paid before ordinary shareholdersFixed rate of returnCumulative preference shareholders haveright to dividend carried over to next year inevent of non-paymentLong Term SourcesNew Share Issues arranged by merchant orinvestment banksRights Issue existing shareholders given right tobuy new shares at discounted rateBonus or Scrip Issue change to the sharestructure increases number of shares and reducesvalue but market capitalisation

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