Presentation Transcript

1. GrantsA grant is money given to a business by government organisation or charity.A grant is used for setting something up that you maybe don’t have enough money for or if its to train or educate you can get it for free even if you have the money already.Benefits – the money does not have to be paid back and can be put into the business. Disadvantages – many businesses do not qualify for them, they have to have a valid reason as to why the government or charity should give them a grant.
2. What is overdraft? Overdraft Overdraft is a flexible arrangement that allows a business to spend more money than they have in their bank account when it needs extra, this money is paid back when the money is put back in the bank When would you use overdraft? A business might use overdraft when they have a short term problem paying people such as suppliers or getting more stock that they might need to make the money back Advantages Once it has been set up the business can use its overdraft arrangement as many times as they want without having to ask the banks permission every time. Disadvantages Overdrafts normally have high interest rates attached to them and the bank can ask for it to be paid back in full at any time.
3. Bank Loan Finance provided by the bank that will be paid back over time. Benefits Large amounts can be borrowed that don’t have to be paid back all at once Disadvantages Interest has to be paid, increasing costs. Repayment terms must be met. Extra Information The bank is likely to want to see a cash flow forecast and possibility a business plan.
4. What? Share issue is when shares are sold to the public to raise finance for the business. When are they used? They are mainly used so a business can pay for a long-term expansion. An example of where this would take place is for a business that is growing to buy another business.They could also be used for buying buildings in other countries for expansion.

   Share Issue

   Growing businesses Benefits Disadvantages No interest needs to be paid You don’t need to repay the share capital Shareholders will expect dividend Could be loss of control over original owners since they are selling part of their ownership Finally, other fees may also be quite high, such as advertising the sale of shares, and also paying for financial advisers etc.

5. Trade credit – small businesses

   What is it? Trade credit is when a supplier will allow a debt to be paid for goods or services. This will be paid between one or two months after delivery. When is this used? This is used when a business needs certain supplies but cant pay for it. This will be paid for after the supplies are delivered and used. This means that businesses can buy things then pay for them later when they have the money Benefits There is free finance for the period when trade credit is used (ie no interest is paid) Good cash flow forecasts lead to the businesses gaining trade credit Drawbacks There may be a lost discount for quick payments References are needed from the bank so this could prove troublesome for some businesses.
6. Selling Unwanted Assets Key Term This is another form of internal finance as it turns the business’s own property and assets into cash. The business has to make sure that it does not need the assets – if it does, then it could arrange a sale and leaseback deal. When Most Used To pay for expansion or to pay off debts. Benefits No interest paid and the finance raised does not have to be repaid. No loss of control of the business. Disadvantages The asset is no longer owned The asset may still be needed by the business so there will be leasing costs to use it (or use a replacement).