Advantages and

disadvantages of sources of
finance for expansion
• Trade Credit:Trade credit is the loan
extended by one trader to another when
the goods and services are bought on
credit.
Advantages Disadvantages
• Helps cash flow • If company has poor
situation credit history
• Pay creditors at a
later stage allowing
goods to be sold
Sale of Assets
Advantages Disadvantages
• If property it may • Depreciation – value
have appreciated has decreased
therefore not worth
as much as when the
company bought it
Hire Purchase

• A hire purchase, also known as an

installment plan, is an arrangement
whereby a customer agrees to a contract
to acquire an asset by paying an initial
installment and repays the balance of the
price of the asset plus interest over a
period of time.
Advantages Disadvantages
• Quick and easy to • Not owned until item
raise finance is fully paid for
• No security • Interest charged
• Will eventually own it
and will become an
asset
Share issue

• Share issue is the process by which

companies pass on new shares to
shareholders, who may themselves be
new or existing shareholders. Companies
can issue shares to both individuals or
corporate bodies, and in another article
we look in more detail at the step by step
process to issue shares
Advantages Disadvantages
• Share of the profits • Profits shared
• Part ownership of the • Ownership and
business control – who has it?
• Have a vote (only
ordinary)
• Raise a lot of cash
Debt factoring

• Debt factoring is another word for

accounts receivable finance or the process
of selling unpaid invoices for a percentage
of their worth. It is a useful form of
alternative finance designed to support
the working capital cycle
Advantages Disadvantages
• Ease cash flow • High interest
problems • Risk of lower value of
sales
Venture Capital
Advantages Disadvantages
• Raise large amounts • Venture capitalist own
of Capital part of the business
• Good way for • Will sell off once
expansion if you have money is made
a good product/idea meaning other
sources of finance for
expansion will need to
be looked at
Loan/overdraft
• It is a private or institutional investment made into early-stage
/ start-up companies (new ventures). As defined, ventures
involve risk (having uncertain outcome) in the expectation of
a sizeable gain. Venture Capital is money invested in
businesses that are small; or exist only as an initiative, but
have huge potential to grow. The people who invest this
money are called venture capitalists (VCs). The venture
capital investment is made when a venture capitalist buys
shares of such a company and becomes a financial partner in
the business.
Advantages Disadvantages
• Quick way to raise • Interest
cash
• Eases cash flow
problems
• Flexible
• Short-term
Government assistance –
(grants)
• A government grant is a financial award given
by the federal, state, or local government
authority for a beneficial project of some sort.
It is effectively a gift: It does not include
technical assistance or other financial
assistance, such as a loan or loan guarantee,
an interest rate subsidy, direct appropriation, or
revenue sharing. The grantee is not expected
to repay the money.
Advantages Disadvantages
• Usually free • Certain criteria to be
• Can be large amounts awarded one e.g.
areas of high
unemployment
• Application can be
difficult
Crowd funding
• Crowdfunding is the use of small amounts of capital
from a large number of individuals to finance a new
business venture. Crowdfunding makes use of the
easy accessibility of vast networks of people
through social media and crowdfunding websites to
bring investors and entrepreneurs together, with
the potential to increase entrepreneurship by
expanding the pool of investors beyond the
traditional circle of owners, relatives and venture
capitalists.
Advantages Disadvantages
•fast way to raise •not all projects
finance that apply to
•feedback and crowdfunding
expert guidance platforms get onto
them
Peer to peer lending

• Peer-to-peer (P2P) lending enables

individuals to obtain loans directly from
other individuals, cutting out the financial
institution as the middleman. Websites
that facilitate P2P lending have greatly
increased its adoption as an alternative
method of financing.
Advantages Disadvantages
•Higher returns to •Credit risk
the investors •No
•More accessible insurance/govern
source of funding ment protection
•Lower interest
rates
Angel Investors
• An angel investor (also known as a private investor,
seed investor or angel funder) is a high net worth
individual who provides financial backing for
small startups or entrepreneurs, typically in exchange
for ownership equity in the company. Often, angel
investors are found among an entrepreneur's family
and friends. The funds that angel investors provide may
be a one-time investment to help the business get off
the ground or an ongoing injection to support and carry
the company through its difficult early stages.
Advantages Disadvantages
•willing to take risks •not in total control
•The money isn’t a •Extremely High
loan Risk
Financial Appraisal

• Financial appraisal is an objective evaluation

of the profitability and financial strength of a
Business unit. Many a times, the
terms financial performance appraisal and fi
nancial statement analysis are used as
synonymous. The techniques
of financial statement analysis are used for
the purpose of financial appraisal.
Payback Period Method

• It is defined as the number of years

required to recover original cost invested
in a project. It has two conditions
• When cash inflow is constant every year
PBP= Cash outflow/cash inflow (p.a.)
Net Present Value Method

• It is the best method for evaluation of

investment proposal. This method takes
into account time value of money.
• NPV= PV of inflows- PV of outflows