Task: Identify and explain at least one advantage and one disadvantage of each of the following

external sources of finance (long-term).

On completion, check your notes with your teacher.

External Sources of Finance: Long-Term

Source of Finance Positive Impact Negative Impact
Bank loan - A  Suitable for the purchase of fixed  Can be difficult to obtain because a
source of finance assets such as machinery and vehicles business will need to apply or may
offered by a bank, because a business can access large need a business plan. This can lead to
which must be paid sums of money and once accepted it delays in accessing the capital or the
back with interest will be available instantly. This will lead capital not being gained at all.
over a set term. to the business expanding quickly or Therefore, it can be time consuming,
improving efficiencies. Therefore, the which may result in missed
business can take advantage of opportunities.
opportunities such as growth or  Security or collateral may be required
increasing productivity by using new because lending money is a risk for
machinery. banks. The security may be other
fixed assets, which could lead to
them being taken if the debt cannot
be repaid.
Commercial  
mortgage - A loan
on property.

Share capital -  
When a limited
company offers to
sell shares (parts of
the business) to
investors (existing
or potential
shareholders).

Venture  
capitalist/business
angel - Finance
that investors
provide to small
businesses.
Government grant  
- A grant is a
payment made to a
business that does
not have to be paid
back.