A-Level AQA Business Revision Unit 1(Part 13) : Sources of Finance

Why do businesses need finance?

Not alot in life is free. Businesses need finace in order to fund their operations, their manufacturing, costs and expenditure, and ultimately in order to make sure that the business survives.

An entrepeneur obtain internal sources of finance:

- Fouder finance

- Retained profit

Founder finance - The owner's own money is used to fund the business

Retained profit - The profits from the previous trading period is reinvested into the business

There are also external sources:

- Bank loan

- Bank overdraft

- Venture capitalist

- Business angels

- Grants

Bank loan - An agreed sum between the bank and business owner for a certain amount of money to be repaid during a set period of time

Bank overdraft - A temporary arrangement which allows the business to draw out more money that is in its account, up to an agreed limit

Venture capitalist - A professional investor intereseted in high growth, high risk businesses and will invest in return for shares and expects a high return

Business angels - A wealthy entrepeneurial individual willing to invest in small, high risk businesses for a high return

Factoring - Buying a debt from a business so the repayments are given to the producer