raising finance

• ORDINARY SHARE CAPITAL- raising capital via selling shares and part ownership of the company to outside investors who are entitled to a share of the profits via dividends.
• OVERDRAFT- a short-term source of finance that allows a business to spend more than they have in their current account up to an agreed limit. Interest is charged daily.
• BANK LOAN- a medium to long-term source of finance which will require some form of collateral and for which interest is charged.
• PERSONAL EQUITY- personal sources of finance generated by the owner of the business
• VENTURE CAPITAL- the provision of finance and advice by specialist firms to 'high risk' businesses in return for share capital and the prospect of future high returns.
• MORTGAGE- a specialised long-term source of finance used for the purposes of buying property.
• BUSINESS ANGEL- a private individual willing to offer both advice and financial support to a risky business in return for share capital or a share in the profits.
• CAPITAL EXPENDITURE- spending upon fixed assets such as land, building and machinery.
• REVENUE EXPENDITURE- spending upon day-to-day items used in the operations of a business e.g. stationary and stock.

• ORDINARY SHARE CAPITAL- raising capital via selling shares and part ownership of the company to outside investors who are entitled to a share of the profits via dividends.
• OVERDRAFT- a short-term source of finance that allows a business to spend more than they have in their current account up to an agreed limit. Interest is charged daily.
• BANK LOAN- a medium to long-term source of finance which will require some form of collateral and for which interest is charged.
• PERSONAL EQUITY- personal sources of finance generated by the owner of the business
• VENTURE CAPITAL- the provision of finance and advice by specialist firms to 'high risk' businesses in return for share capital and the prospect of future high returns.
• MORTGAGE- a specialised long-term source of finance used for the purposes of buying property.
• BUSINESS ANGEL- a private individual willing to offer both advice and financial support to a risky business in return for share capital or a share in the profits.
• CAPITAL EXPENDITURE- spending upon fixed assets such as land, building and machinery.
• REVENUE EXPENDITURE- spending upon day-to-day items used in the operations of a business e.g. stationary and stock.

Personal Savings

• No interest needs to be paid
• might not have enough
• opportunity cost!

Mortgages

• can borrow a reasonable amount of capital at a cheaper rate than a normal loan
• if the business fails your own home is at risk!
• Borrow from family and friends
• might not have to pay interest
• can add stress and strain to relationships

• only available to incorporated businesses
• tends to be a major source of finance for larger firms
• there is limited liability
• there is a risk of losing some control to shareholders and the original aims of the business might be lost in the drive towards profits.

• Bank Loans
• repayments and interest rates are known helping with budgeting
• the bank can also provide advice and support
• the size of the loan can be matched to the needs of the firm
• loans offer limited flexibility and the size of the loan is dependant upon levels of available collateral

• money offered to 'high risk' firms rejected by banks

• cash provided through a mixture of loan and share capital

• it is in the venture capitalist's interests to provide help and advice

• firms have to be prepared to lose significant levels of control

• venture capitalists might demand high returns and have a large influence on daily affairs

Long term finance is more appropriate when purchasing capital items such as land, buildings, machinery, vehicles etc.

Long Term sources of finance (3-5 years)

• share capital
• loans
• venture capital
• personal sources

If you are mainly spending money on revenue items such as stock and wages then these offer short-term returns and therefore short-term sources of finance are more appropriate.

Short Term sources of finance (1 year)

• Personal Sources
• Bank Overdraft

• Only Ltd's or Plc's can sell shares
• Sole traders and partnerships are more reliant upon personal sources of finance and banks
• Consider how much money is required-if it is a large amount then a long-term sources of finance will be most appropriate
• How much risk is there for the lender? If the firm is high risk then venture capital might be used