Edexcel Business A Level Revision

Grants -  Are fixed amounts of capital provided to business by the government or other organisations to fund specific projects. This could be in the form of actual monetary grants, subsidies and tax relief schemes. This method of finance operates both on a national and regional level. This can be really useful for new small businesses. Certain factors do come along with grants to see if you qualify for receiving one, such as; Locate in an area of high deprivation Provide employment Reduce negative environmental impacts Support a good cause This is also good for businesses needing a large sum of capital to injected into their businesses.

Trade credit - This means paying suppliers a period of time after the goods or services have been received. Type of supplies bought on trade credit is normally things such as stock and raw materials. It gives the business time to use the supplies to produce and sell the output before paying the invoices.   IT HELPS WITH CASH FLOW PROBLEMS   In effect the supplier is providing the business with finance for the period of the trade credit e.g. 30 days.   The business may lose out on discounts offered for the immediate or quick payment increasing costs.     BUT.......     In the long term this method of finance is not suitable for long term or large purchases.   New businesses may be required to pay in advance until credit terms are agreed.      

Leasing -  Allows a business to benefit from the use of an asset without owning it or buying it outright. This is a flexible form of finance, a regular monthly payment secures the use of an asset. The business pays a set amount in installments to lease the asset without owning it or buying it outright. The asset remains the property of the leasing company and at the end of the time period the asset is returned to the lease company and the business stops making payments. Avoids the need to finance the asset but may be more costly in the long run. However, the lease company is responsible for any repairs and maintenance. At the end of the lease period the business may start a new lease agreement for the latest model. Leasing reduces the need for finance at the outset but if the cash flow is unreliable the regular payments can be a problem.

Share capital -   Finance raised through the sales of shares by ONLY private and public limited companies. SHARE CAPITAL IS A FORM OF EQUITY CAPITAL e.g. the shareholder becomes a part owner of the business. Shareholders will be rewarded for their investment by the repayment of dividends but may also benefit from an increase in share pricing increasing the value of their shares. Issuing shares is a complex and costly process so only really an option for raising larger amounts of finance to fund long term projects. ADVANTAGES OF SHARE CAPITAL Only need to pay dividends if a profit is being made and the amount of dividend is not fixed. Possible to raise large amounts of finance No interest repayments DISADVANTAGES OF SHARE CAPITAL Loss of ownership as shareholders are part owners (ownership diluted) Potential risk of loss of control for a Plc with a threat of hostile takeovers. Complex and costly process of issuing shares, especially for a Plc.

Loans - A set amount of money provided for a specific purpose, to be repaid with interest, over a set period of time. Loans are vital for many businesses, providing long term funds for a given period to help finance investment projects. A fixed sum including interest and repayment is payable monthly, making planning and managing the cash flow much easier. Loans may be secured against an asset and if there is a default on repayments the asset can be taken. Financial institutions can vary interest rates depending on the amount of risk placed on a loan An external source of finance generally considered to be more suitable for longer-term projects. However, this will depend upon the size of the loan and the repayment period. ADVANTAGES OF LOANS Quick and easy to secure Fixed interest rates allow a firm to budget Improved cash flow The borrower retains ownership of the company. Appropriate method of financing fixed assets DISADVANTAGES OF LOANS Interest must be paid r...