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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

1.

The main sources of finance available


to business are:
Short Term Finance

Trade Creditors
Bank Overdraft
Expenses Due

2.

The main sources of finance available to


business (continued):
Medium Term Finance

Term Loan
Leasing
Hire Purchase

3.

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

Short-term sources of finance


1.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

Short-term sources of finance


(continued)
2.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

Short-term sources of finance


(continued)
3.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

Medium-term sources of finance


1.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

Medium-term sources of finance


(continued)
2.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

Medium-term sources of finance


(continued)
3.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.

Long-term sources of finance


1.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

Long-term sources of finance


(continued)
2.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

Long-term sources of finance


(continued)
3.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

Long-term sources of finance


(continued)
4.Loan Term Loan

The loan and interest is paid back in equal


instalments over the length of the loan

5.Grants

A non-repayable source of finance from the


Government or European Union

Long-term sources of finance


(continued)

Examples of grants include:


Enterprise Ireland providing grants to new firms

starting up
Failte Eireann providing grants to firms in the
Tourism sector

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