Advantages and disadvantages of sources of finance for expansion

Advantages and
disadvantages of sources of
finance for expansion
Trade Credit
Advantages
• Helps cash flow
situation
• Pay creditors at a
later stage allowing
goods to be sold
Disadvantages
• If company has poor
credit history
Sale of Assets
Advantages
• If property it may
have appreciated
Disadvantages
• Depreciation – value
has decreased
therefore not worth
as much as when the
company bought it
Hire Purchase
Advantages
• Quick and easy to
raise finance
• No security
• Will eventually own it
and will become an
asset
Disadvantages
• Not owned until item
is fully paid for
• Interest charged
Credit cards
Advantages
• Easy way to pay for
goods
• Can aid cash flow
Disadvantages
• Not a way a business
would use if
considering expansion
• High interest charged
Share issues
Advantages
• Share of the profits
• Part ownership of the
business
• Have a vote (only
ordinary)
• Raise a lot of cash
Disadvantages
• Profits shared
• Ownership and
control – who has it?
Debt factoring
Advantages
• Ease cash flow
problems
Disadvantages
• High interest
• Risk of lower value of
sales
Venture Capital
Advantages
• Raise large amounts
of Capital
• Good way for
expansion if you have
a good product/idea
Disadvantages
• Venture capitalist own
part of the business
• Will sell off once
money is made
meaning other
sources of finance for
expansion will need to
be looked at
Loan/overdraft
Advantages
• Quick way to raise
cash
• Eases cash flow
problems
• Flexible
• Short-term
Disadvantages
• Interest
Government assistance – (grants)
Advantages
• Usually free
• Can be large amounts
Disadvantages
• Certain criteria to be
awarded one e.g.
areas of high
unemployment
• Application can be
difficult