Sources of Finance : Sources of Finance Finance sources may be internal or external, but they may also be short, medium or long term:
Short Term: Finance the business for up to 1 year.
Medium Term: Finance the business for up to 5 years
Long term: Finance the business for more than 5 years. Short, Medium and Long Term Finance : Short, Medium and Long Term Finance Choosing a Source of Finance : Choosing a Source of Finance Legal Structure – PLCs and LTDs can sell shares, Sole Traders and Partnerships cannot
The use of the finance – large expensive machinery will require a long term source, paying off an outstanding account will only require a short term source Choosing a Source of Finance : Choosing a Source of Finance The amount required – The larger the sum, the less likely the owners are to be able to raise the money internally. However, lenders often want to see that the borrower is also taking a risk so may be a combination.
Profit levels – The higher the profits the more money to use from internally. A firm with low profits (which needs the money the most!) will find external sources hard to find. Choosing a Source of Finance : Choosing a Source of Finance Level of Risk – A risky enterprise will find it harder to raise capital, although venture capital may be available. May have to rely on personal sources.
Views of the owners – May be reluctant to lose control of a firm, especially a family firm and thus reject shares and venture capital. However, some may welcome the advice a venture capitalist can give.