Business Financing

Jun 27th, 2015
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Abraham Lincoln University
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Financing for over 5 yearsCumulative Preference Shares: Cumulative preference shares are those shares on which fixed dividend cumulate till it is fully paid up. It means that on these shares, if a dividend is not paid in one year then that dividend will be combined in the next year. For e.g. In the year 2005, if company is unable to pay dividend of Rs.5000 then in the year 2006, the company have to pay 5000 of year 2005 and then 5000 of year 2006. Non-cumulative Preference Share: Such shares do not have the privilege of the accumulation of unpaid dividend. In other words, if profits during a particular year is not sufficient, the arrear lapses.

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SOURCES OF FINANCE-Internal sources:Personal savings: This is most often an option for small businesses where the owner has some savings available to use as they wish.Retained profit: This is profit already made that has been set aside to reinvest in the business. It could be used for new machinery, marketing and advertising, vehicles or a new IT system.Working capital: This is short-term money that is reserved for day-to-day expenses such as stationery, salaries, rent, bills and invoice payments.Sales of assets: There may be surplus fixed assets, such as buildings and machinery that could be sold to generate money for new areas. Decisions to sell items that are still used should be made carefully as it could affect capacity to deliver existing products and services.External sources:Shares: Limited companies could look to sell additional shares, to new or existing shareholders, in exchange for a return on their investment.Loans: There are debenture loans, with fixed or variable interest, which are usually secured against the asset being invested in, so the loan company will have a legal shared interest in the investment. This means that the company would not be able to sell the asset without the lender's prior agreement. In addition the lender will take priority over the owners and shareholders if the business should fail and the cost will have to be repaid even if a loss is made.There are other types of loan for fixed amounts with fixed repayment schedules. These ma

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