Understanding the Sources of Finance Available to a Business



Understanding the Sources of Finance Available to a Business

Introduction

The main purpose of this paper is to show the importance of source of finance available to a business. Finance is a very important factor in any business. A business needs finance in order to make improvement in it. There are many sources through which a company can receive its finance, and increase its capital.

Discussion

Finance is the life blood of any business. For any business, there is great importance of finance. In order to acquire the finance, businesses seek for different sources.

Understanding Sources of Finance available for Business

The most important thing to run the business is finance. There are various sources through which the business acquires finance for its logical function. Finance helps the business to grow, develop and expand (Bromwich & Bhimani, 2009, pp.45). The core limiting factor for business is finance, and hence, the manager must manage the financial resources properly. 

There are two major sources of finance for business. These include internal and external sources. The business managers decide which form of financing to be used in the business (Klammer, 2003, pp.35). The business can only prosper if the right form of financing is chosen by the management. Both the internal and the external source of finance have its own merits and demerits (Lumijarv, i2001, p. 171). The classification of sources of finance is dependent on various factors. The sources of finance can be classified as Internal and External, Short-term and Long-term or Equity and Debt (Bromwich & Bhimani, 2009, pp.45).

Identify Sources of Finance available for Business

There are three major types of funding options available to small businesses. These are debt financing, equity financing and grants (Bromwich & Bhimani, 2009, pp.45).

The debt financing refers to the availability of credit or loans to the small businesses. A business that has a good credit reputation in the market will not find it hard to get the required amount of credit. However, this cost of borrowing money has to be compared with the cost of equity financing for cost benefit analysis (Klammer, 2003, pp.35).

Equity financing for a small businesses may mean as one coming from friends and family and those that can be attained through angel investors. This also includes the venture capitalists. Grants refer to the money that is got through a state or a regulatory authority for small businesses. These regulatory bodies usually provide grants to small businesses in an attempt to facilitate their operations and boast the economy as a whole (Lumijarvi, 2001, pp.171).

It is vital to state here that each of the funding options stated earlier has its own pros and cons. The small business should consider these advantages and disadvantages before choosing to opt for a certain funding option.

Assess the Implications of Different Sources

There are many sources of finance available to a business. Finance is essential for several purposes and different purposes need sources of finance which are most suitable to them (Klammer, 2003, p. 35). When choosing an appropriate source of finance some factors ...