Internal Source of finance: Internal sources of finance are funds found inside the business. It means that the business finances its activities (including investments) with its own money without outside help.
The internal are composed of: * its existing equity, the personal sources * its own profitability (cash flow, reserves, capital gains). * its savings
2) External finance
When the internal resources are not sufficient, the company can use the external resources. The external resources are the funds found outside the business. It means that the business finances its activities with the money of bank, investors, shareholders, state…
The overdraft is the balance of a bank account when the funds withdrawn on it have exceeded the funds deposited on it. The balance is in a minus situation so we can speak of overdraft. There are two different kinds of overdraft:
An Authorised Overdraft –
This is when you have a set limit pre-arrangement with your bank that allows you to go up to. You have to pay interest to use this overdraft facility and you need to have regulated income or a full time job.
An Unauthorised Overdraft –
When you have not agreed an overdraft facility with your bank in advance or cause it to go over the limits of an existing Arranged Overdraft. This kind of overdrafts can lead to some problem with the bank which will attempt to recover its money and to a termination of your bank account. 4) Business loans
A business loan is a type of funding given to business by a bank, an individual(s), an organization… Usually the business will have to pay a certain amount of interest in the future to get the loans but sometimes it’s not the case. For example, the State can give loans to a young business without asking interest after. 5) Commercial Mortgages
Following the dictionary a mortgage is a temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt. So what’s a commercial mortgage? It is a type of mortgage used to buy buildings and land for business purposes. It can be offered to start-ups, medium or large business and can give money for: buying an existing business, buying your business space or expanding it, investing in either commercial or residential property and develop property on commercial/residential basis…
The disadvantage is that lender holds the legal rights over the business property/land until the loan is fully paid. If it is not on time the interest can grow until the business finish to be repossessed. 6) Venture Capital
The venture capital is a capital provided by a specializing institution (group of wealthy investors, investment banks…) to new company and small business with great potential but which have usually a limited operating history and which cannot raise funds by issuing debt
The venture capital can also be provided to accompany the expansion of a promising company. In this type of operation, the provider of venture capital is willing to take a significant risk in the hope of eventually achieving high returns. 7) Hire purchase
How work the Hire Purchase?
To acquire a good, the buyer makes the payment of a deposit and completes the purchase by paying a series of regular instalments until the complete payment. The buyer can enjoy the use of his product during the repayment period but the ownership (title) of the item does not pass to him before the all payment of the loan. 8) Leasing
A lease is a contractual agreement between the lessor and the lessee in which the lessee receives the right to total ownership of a specified asset (house, apartment, business, horse…) for a spelt out period of time and conditions in return for payments. 9) Factoring
The factoring operation is a transfer of a company's accounts receivable at a discount to a third party called a factor. The factor protect the…