• INTERNAL SOURCES OF FINANCE refer to those ways of financing a business which are GENERATED FROM ITS OWN OPERATIONS.

• RETAINED PROFITS refers to the REMAINING PROFITS AFTER TAXES AND DIVIDENDS are paid (if any), which can be REINVESTED into the company to fund expansions.

• Of course the firm must be PROFITABLE and not running at a loss for this source of finance to be an option in the first place.

• THE SALE OF ASSETS, refers to the raising of funds through the sale of items of property owned by the company. 

• When you finally head off to University ('🤞'), you will need to finance your studies and living expenses. Explain how you could utilise internal financial sources to pay for this (Use your imagination)

• "In order to finance my University studies and living expenses I will use the following three internal sources: 

• EXTERNAL SOURCES OF FINANCE refer to those ways of financing a business which are GENERATED FROM OUTSIDE THE BUSINESS.

• SHARE CAPITAL refers to money raised by a company through issuing shares to investors.

  • • What's a share? Its basically a % ownership of your company that you give away for money.

      • • KEY FEATURES:

          • • PERMANANT source of capital.

            • NO REPAYMENT OBLIGATION, but shareholders may receive dividends.

            • OWNERSHIP IS DILUTED as more shares are issued.

• • LOAN CAPITAL refers to money BORROWED from external lenders, like banks, with a fixed repayment schedule and interest.

    • • • KEY FEATURES:

          • Debt financing; MUST BE REPAID with INTEREST.

          • NO LOSS OF OWNERSHIP/CONTROL.

          • Typically used for long-term investments.

• • OVERDRAFT refers to a short-term facility allowing a business to withdraw more money than it has in its account, up to an agreed limit.

    • • KEY FEATURES:

        • FLEXIBLE, short-term borrowing.

        • INTEREST is charged only on the overdrawn amount.

        • Often used for managing cash flow fluctuations.

• • TRADE CREDIT refers to an arrangement where suppliers allow a business to buy goods or services now and pay later.

    • • KEY FEATURES:

        • • Typically INTEREST-FREE for a short period.

          • Helps manage working capital.

          • Overdue payments may incur penalties.

          • Can discourage suppliers from dealing with you.

• MICROFINANCING, involves providing small loans to individuals or businesses, often in underserved or low-income communities.

  • • KEY FEATURES:

      • • Focuses on supporting entrepreneurship and REDUCING POVERTY.

        • Loans are typically SMALL with lower eligibility requirements.

        • Commonly used for small-scale, community-based businesses.

• LEASING refers to renting an asset (like equipment or vehicles) from a lessor for regular payments without owning it.

  • • • KEY FEATURES:

        • • • Helps businesses AVOID LARGE UPFRONT COSTS.

            • PAYMENTS are SPREAD-OVER A PERIOD, improving cash flow.

            • At the end of the lease, businesses may have the option to purchase the asset.

• BUSINESS ANGELS refer to WEALTHY INDIVIDUALS who provide capital to startups or small businesses in exchange for equity or convertible debt.

  • • • KEY FEATURES:

        • • • Provide not just funding but also mentorship and connections.

            • High-risk, high-reward investments aimed at business growth.

            • Suitable for startups with strong potential.

            • Duration: Long-term (typically tied to the growth or exit of the company).

• A COFFEE SHOP NEEDS AROUND $10,000 TO INSTALL CHRISTMAS DECORATIONS FOR ITS CHRISTMAS THEME. THE SHOP NEEDS TO GET THE JOB DONE ASAP. 

• IT IS A SOLE TRADER WITH NO LARGE OUTSTANDING DEBTS, BUT WHO WISHES TO STAY IN CONTROL OF THE COMPANY.

• CONSIDERING THIS SITUATION WHAT SOURCES OF FINANCE SHOULD THEY CHOOSE, AND WHY? MENTION ALL 5 OF THE CRITERIA ABOVE IN YOUR ANSWER AS WELL AS THE CHOSEN SOURCE(S).

"As the finance is only needed for a short-time period, then they should seek short to mid-term finance sources in addition, as the amount is relatively small...."

• Using the definitions above as well as the infographic pick THREE OF THE SCENARIOS below and choose the most appropriate financing option. Justify your answer.

  • • • • A new rideshare company needs a fleet of electric vehicles to begin operations but cannot afford upfront purchases.

        • A chef wants to open a food truck specializing in plant-based meals and needs funding to purchase the truck and equipment.

        • A real estate developer needs funding to construct a new residential apartment complex in an urban area.

        • A rural artisan wants to purchase raw materials to create handmade baskets for local markets but lacks traditional banking access.

        • A gaming startup developing an innovative virtual reality platform needs seed funding to build a prototype.

        • A tech company specializing in AI solutions wants to expand its global operations and hire top talent.

        • A boutique hotel faces a temporary cash flow shortfall during the off-season but needs funds to pay for utilities and staff wages.

        • A clothing retailer needs to stock up on inventory ahead of the back-to-school shopping season but lacks immediate cash.