When choosing finance for a business, it is essential that it is adequate for the needs of the business. Make sure that it is enough to pay for what it is you need. It is also important to make sure that it is appropriate and won’t leave the business with massive interest payments.
Internal and External Sources:
- Internal Sources
- Retained Profits from previous years after all deductions.
- Sales of Assets such as machinery, land etc.
- Effective use of capital. This may include chasing debtors and negotiating longer credit periods and supplies.
- External Sources
- Loan Capital. This is used to purchase fixed assets such as land and machinery. They are repaid in monthly installments. The bank usually requires collateral for these types of loan.
- Venture Capital. This is a risky type of investment. It provides long term committed share capital to help companies grow and succeed. Venture capitalists typically would like to invest in Entrepreneurial businesses. Venture capital is invested in exchange for an equity stake.
- Ordinary share capital. This is when a business is sold to another owner. Companies use ordinary shares to raise cash so they would raise new shares and offer them to new or existing shareholders. The shares is determined by the price another investor is prepared to pay for them.
- Personal funding. Owners of small businesses make use of their own money to invest into their own business. This money can come from their own personal savings, inherited funds, personal bank loans.