Sources of finance

Specific objectives
1. To list several reasons why small businesses need finance

2. To identify Sources of finance more appropriate to new

startup companies

3. To identify sources of finance more appropriate to make a

long-term investment

4. To identify sources of finance more appropriate to use to

pay the day-to-day expenses of a company

5. To outline the advantages and disadvantages of each

source of finance
 What is finance?
• Finance refers to sources of money for a
business.
What are some of the reasons why a
business may need finance
Reasons why firms need finance
Start up a business, eg pay for premises, new
equipment and advertising
Run the business, eg having enough cash to pay staff
wages and suppliers on time
Expand the business, eg having funds to pay for a
new branch in a different city or country
• Some sources of finance are short term and
must be paid back within a year. Other sources
of finance are long term and can be paid back
over many years.
 Where is finance found?
• Internal sources of finance are funds found inside the
business. For example, profits can be kept back to
finance expansion, the sales of assets (items it owns)
that are no longer really needed to free up cash.

• External sources of finance are found outside the

business, eg from creditors or bank

• Some sources of finance are short term and must

be paid back within a year. Other sources of finance
are long term and can be paid back over many
years.
• Sources of finance needed if a company
wants to make a long-term investment in
new premises or new machinery.

1. Stock market flotation

2. Issue new share
3. Long term loan such as mortgage
4. Leasing
5. Hire purchases
• Sources of finance needed to meet short-
term running costs such as paying staff
wages at the end of the month and to buy
stock

1. Owner’s equity (personal saving)

2. Overdraft
3. Short term secured loan
4. Short term unsecured loan
5. Trade credit
• Sources of finance more appropriate to new
startup companies
1. Owner’s equity (personal saving)
2. Grant funding
3. Angel funders
4. Debentures
5. Venture capitalists.
6. Issuance of shares
7. Loans from family and friends
8. Loans from micro-lending institutions
9. Loans from commercial banks
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage
Sources of Finance Advantage Disadvantage