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Business Studies IGCSEPDF 157
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5.1 Business Finance: Needs and Sources
Why businesses need finance
Short-term finance (≤ 1 year)
Long-term finance (>5 years)
Medium-term finance (1–5 years)
Source
Leasing
Source
Overdraft
Source
Share issue
Trade credit
Hire purchase Pay in
instalments
Description
Rent equipment
Short-term loan Borrow fixed sum
Description
Sell company shares
Description
Withdraw more than in
account
Delay paying suppliers
1. Start-up costs (machinery, rent,equipment).
2. Working capital (day-to-day expenses).
3. Expansion (new branches, machinery).
4. Research and development.
5. Dealing with cash-flow problems.
Advantage
No large upfront
payment
Ownership after
payment
Advantage
Permanent
capital
Advantage
Flexible
Improves cash
flow
Quick access
Disadvantage
Expensive
long-term
Interest cost
Must repay
soon
Disadvantage
High interest
Disadvantage
Ownership dilution
Lose discount