1. 19
Business Finance

2. Business Finance 19
When choosing a source of finance, there are three terms:
Short term – Up to one year
Medium term – Between one and five years
Long term – Over five years
When deciding which term to choose, the business should consider carefully:
What they need the money for
How much they have available to meet the repayments

3. Business Finance 19
The main sources of finance available to business are:
Short Term Finance
Trade Creditors
Bank Overdraft
Expenses Due

4. Business Finance 19
The main sources of finance available to business (continued):
Medium Term Finance
Term Loan
Leasing
Hire Purchase

5. Business Finance 19
The main sources of finance available to business (continued):
Long Term Finance
Ordinary Shares
Retained Earnings
Sale and Leaseback
Long Term Loans
Government and EU Grants

6. Business Finance Short-term sources of finance Trade Creditors19
Short-term sources of finance
Trade Creditors
Here payment to creditors is delayed and the money placed on deposit earning interest
No interest is charged
Firm may lose out on cash discounts available for early payment

7. Business Finance Short-term sources of finance (continued)19
Short-term sources of finance (continued)
Bank Overdraft
The current account customer gets permission to overdraw their current account
Interest is only charged on the amount of the overdraft used
Overdraft interest is higher than other bank loans

8. Business Finance Short-term sources of finance (continued)19
Short-term sources of finance (continued)
Expenses Due
Here payment for business expenses is delayed and the money placed on deposit earning interest
No interest is charged
Firm may risk losing essential services if they do not pay their bills on time

9. Business Finance Medium-term sources of finance Term Loan19
Medium-term sources of finance
Term Loan
A loan which is repaid over a fixed period of time between one and five years
Both loan and interest are repaid in equal instalments

10. Business Finance Medium-term sources of finance (continued) Leasing19
Medium-term sources of finance (continued)
Leasing
A firm agrees with a financial institution to pay an agreed sum of money each month in eturn for the use of an asset
The firm never owns the asset
The firm may end up paying more in the long term than the asset is worth

11. Business Finance Medium-term sources of finance (continued)19
Medium-term sources of finance (continued)
Hire Purchase
The hire purchase agreement involves three parties – the buyer, the seller and the finance company
The finance company pays the seller in full for the asset and then collects the money in instalments from the buyer over an agreed period of time.

12. Business Finance Long-term sources of finance19
Long-term sources of finance
Equity Capital (Issue of Ordinary Shares)
The company sells shares in the business to raise money
Dividends may be paid to the shareholders out of the profits each year
No interest has to be paid on the money raised
Each new shareholder has a say in the running of the company

13. Business Finance Long-term sources of finance (continued)19
Long-term sources of finance (continued)
Retained Earnings
Here, some of the profits made are retained (kept) in the business to pay for future expansion
There is no cost to this type of finance

14. Business Finance Long-term sources of finance (continued)19
Long-term sources of finance (continued)
Sale and Leaseback
Here fixed assets are sold to raise finance for the firm and then leased back over a long period of time
The firm gets keeps full use of the asset and also receives a much needed cash injection
The firm no longer owns the asset and so will not benefit from any increase in value

15. Business Finance Long-term sources of finance (continued)19
Long-term sources of finance (continued)
Loan Term Loan
The loan and interest is paid back in equal instalments over the length of the loan
Grants
A non-repayable source of finance from the Government or European Union

16. Business Finance Long-term sources of finance (continued)19
Long-term sources of finance (continued)
Examples of grants include:
Enterprise Ireland providing grants to new firm’s starting up
Failte Eireann providing grants to firms in the Tourism sector