Selecting Finance

Selecting Finance Consider the following factors when choosing a source of finance: ● The sum required: When a business requires a large sum of money, it will have to borrow from a large financial institution/ ask shareholders to provide more capital ● The cost of borrowing: Amount of interest required● Risk: the more the risk, the more the interest. Some forms of borrowing, e.g the credit card company can be expensive ● Permanent/ Temporary● Size of the business: large business have access to a wider range of funds, also can borrow at lower interest rates (their custom is valued more by the lender than the custom of a small business) ● Influence and control: some lenders (venture capitalist & banks) will only provide capital in return for some input into the running of the business ● Advice: Some providers of capital offer advice with the capital, though they might need to pay for advice. The longer the loan term and the larger the loan amount, the higher the likely interest rate will be. Taking external finance into a business risks losing some control over decision making. The need for finance needs to be matched to the sources available. Matching: Businesses need to match their need for finance with suitable source. ● Internal/ External?● Short term/ long term?● When are we going to repay?● Willing to lose some control of business?