contract where maintenance is included. Long Term Sources of Finance SOURCE DESCRIPTION ADVANTAGES DISADVANTAGES Owner(s) Additional funds Reduces amount to be Owner(s) may find it savings (equity borrowed from other difficult to withdraw sources. investment. ) invested from the personal Control is maintained. Investment is at risk if finances. business fails (unlimited liability). Mortgage A special type of loan Can be taken out over If interest rates change used to purchase very long periods eg repayments might property and land. 25 years. Lower rate increase. of interest than other bank loans. Share issue Selling shares (a Very sums of Cost of issuing shares small part of the money can be raised. can be expensive. organisation). Owners Money invested Deciding on share price of shares are known through share issue is can be difficult. as shareholders. not repaid. Shareholders have limited liability and receive dividends. Debentures Loans received from Very large sums of Interest will require to private individuals or money can be raised. be paid even if other organisations. organisation is making Organisation pays a loss. Interest is paid over interest on the loan the debenture period over the debenture If organisation is and original value of period giving them unable to repay – loan paid at end of time to raise the value interest/loan the debenture period. of the loan before it is debenture-holders can due. sell assets to recover what is owed. Venture Venture capitalists Allows finance to be Venture capitalists are capital provide to raised for risky generally only organisations that are ventures. interested in loans. deemed too risky by Venture capitalist will Fees/interest rates can banks. often provide advice be very high. to ensure their Often want share of investment is business in exchange successful. for finance. May want to be involved in decision
contract where maintenance is included. Long Term Sources of Finance SOURCE DESCRIPTION ADVANTAGES DISADVANTAGES Owner(s) savings Additional funds (equity ) invested from the personal finances. Reduces amount to be borrowed from other sources. Control is maintained. Owner(s) may find it difficult to withdraw investment. Investment is at risk if business fails (unlimited liability). Mortgage A special type of loan used to purchase property and land. Can be taken out over very long periods eg 25 years. Lower rate of interest than other bank loans. If interest rates change repayments might increase. Share issue Selling shares (a small part of the organisation). Owners of shares are known as shareholders. Very sums of money can be raised. Money invested through share issue is not repaid. Shareholders have limited liability and receive dividends. Cost of issuing shares can be expensive. Deciding on share price can be difficult. Debentures Loans received from private individuals or other organisations. Interest is paid over the debenture period and original value of loan paid at end of debenture period. Very large sums of money can be raised. Organisation pays interest on the loan over the debenture period – giving them time to raise the value of the loan before it is due. Interest will require to be paid even if organisation is making a loss. If organisation is unable to repay interest/loan the debenture-holders can sell assets to recover what is owed. Venture capital Venture capitalists provide to organisations that are deemed too risky by banks. Allows finance to be raised for risky ventures. Venture capitalist will often provide advice to ensure their investment is successful. Venture capitalists are generally only interested in loans. Fees/interest rates can be very high. Often want share of business in exchange for finance. May want to be involved in decision
Notes-for-People-and-Finance.docx