External Finance

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    External Finance

    External sources – From outside the business

    External Sources of Finance – Long Term Share Capital

    • Limited companies can issue shares
    • Shareholders receive dividends
    • Shares can be
      • – Preference shares – fixed % dividend
      • – Ordinary shares – risk capital / equity

    Loan Capital

    • Providers of loans = creditors
    • Four main types of loan capital:
      • – Debentures – long term loan to the business at an agreed fixed % of interest repayable on a stated date. Up to 25 years.
      • – Mortgages – used to purchase property. Up to 25 years Long term loans – provided by specialist organisations
      • – Government assistance – selective and takes form of grants generally

    External Sources of Finance – Medium Term

    • Bank loans
    • Leasing
    • Hire purchase

    External Sources of Finance – Short Term

    • Bank overdrafts – agreed limit, stated time period
    • Trade credit – suppliers allow time period before money is due
    • Debt factoring – business receives immediate payment for credit sales

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