Advantages and disadvantages of sources of finance for expansion

Trade Credit Advantages Helps cash flow situation Helps cash flow situation Pay creditors at a later stage allowing goods to be sold Pay creditors at a later stage allowing goods to be soldDisadvantages If company has poor credit history If company has poor credit history

Sale of Assets Advantages If property it may have appreciated If property it may have appreciatedDisadvantages Depreciation – value has decreased therefore not worth as much as when the company bought it Depreciation – value has decreased therefore not worth as much as when the company bought it

Hire Purchase Advantages Quick and easy to raise finance Quick and easy to raise finance No security No security Will eventually own it and will become an asset Will eventually own it and will become an assetDisadvantages Not owned until item is fully paid for Not owned until item is fully paid for Interest charged Interest charged

Credit cards Advantages Easy way to pay for goods Easy way to pay for goods Can aid cash flow Can aid cash flowDisadvantages Not a way a business would use if considering expansion Not a way a business would use if considering expansion High interest charged High interest charged

Share issues Advantages Share of the profits Share of the profits Part ownership of the business Part ownership of the business Have a vote (only ordinary) Have a vote (only ordinary) Raise a lot of cash Raise a lot of cashDisadvantages Profits shared Profits shared Ownership and control – who has it? Ownership and control – who has it?

Debt factoring Advantages Ease cash flow problems Ease cash flow problemsDisadvantages High interest High interest Risk of lower value of sales Risk of lower value of sales

Venture Capital Advantages Raise large amounts of Capital Raise large amounts of Capital Good way for expansion if you have a good product/idea Good way for expansion if you have a good product/ideaDisadvantages Venture capitalist own part of the business Venture capitalist own part of the business Will sell off once money is made meaning other sources of finance for expansion will need to be looked at Will sell off once money is made meaning other sources of finance for expansion will need to be looked at

Loan/overdraft Advantages Quick way to raise cash Quick way to raise cash Eases cash flow problems Eases cash flow problems Flexible Flexible Short-term Short-termDisadvantages Interest Interest

Government assistance – (grants) Advantages Usually free Usually free Can be large amounts Can be large amountsDisadvantages Certain criteria to be awarded one e.g. areas of high unemployment Certain criteria to be awarded one e.g. areas of high unemployment Application can be difficult Application can be difficult