Short and Long Term Sources of Finance

Short and Long Term Sources of Finance

1. Owners personal finance: personal savings and money borrowed from family and friends

   • ADVANTAGES
     • Reduces the amount to be borrowed from other sources
       • Allows the owner to be in control of the business
   • DISADVANTAGES
     • Owner could lose his savings if the business fails
   • SHORT

2. Bank Overdraft: Allowing a business to spend more money that it has in its bank account

   • Advantages
     • easy to set up
       • Allows a business to continue paying expenses with no money in the account
   • Disadvantages
     • High interest rates are usually applied by the bank for borrowing money this way

3. Government Grants: Money given to a business from the Government

   • ADVANTAGES
     • Money does not need to be repaid
       • Money can be offered as a way to help the business expand
   • DISADVANTAGES
     • Can be complicated to apply for as business needs to meet certain requirements
       • Grants are usually one off payments
   • LONG

4. Bank Loan: The bank agrees to lend the business money for a certain purpose for a fixed period of time.

   • Advantages
     • A business can budget for repayments
       • Purchases of essential equipment can be made in advance and paid back over a period of time
   • Disadvantages
     • Interest has to be repaid along with the loan amount
       • Small businesses may find it more difficult to secure a loan over a long period of time