External Finance

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