Sources of Funds1.Funds? bills needed to establish grow and operate line of reasoning?it is divided into 2 categories, internal sources such as righteousness pay and external sources such as debt finance2.Internal sources/Equity finance?the money the proprietor has proposed to the business?comes from owner?s uprightness/retained profits?owner?s equity is the owner?s contribution?retained profits is the money unbroken by the business after it has paid off its taxes3.External sources/Debt finance?money obtained from people other than the owners?it is divided into short end point/long term/other sources of cash in handa)Short term borrowings ? debts that will be repaid within a year?overdraft ? an agreement amid a commercial bank and business that whollyows a business?s cheque account to go into a deficit to a limit?bank bill ? simply a indite instruction to repay a sum of money by a certain date. The bank does not provide the money, the investors provide the money to the business and the bank is the guarantor whom provides security that the money will be repaid.
b)Long term borrowings ? debts that will take between 5-25 years to repay?Mortgage ? a secured loan apply to fund the purchase of property. Property cannot be sold until all borrowings ar repaid?Debentures ? finance supplied by the general public for a fixed interest rate. Debentures are subject to government regulationc)Other sources of funds?Leasing ? the payment of money for the use of equipment owned by another(prenominal) party.
It is divided into 2 categories, operational lease and financial lease. Advantages: no upfront payment, payments are flexible and tax deductible?factorization ? sale of customer debt/accounts receivable to a financier at a discounted rate?Venture capital ? finance supplied by private investors/venture companies for a risky business that has voltage?Grants ? non-repayable financial benefits supplied by government agencies or private businesses.
- financial considerations?Matching principle ? ensure short term assets are matched to...
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