btec buisness level 3 unit 2 p4

Internal and External Finances

• Internal financial sources: are funds that come from within the business. For example business can sell items it owns that are no longer really needed to free up cash.
• External financial sources: are funds found outside the business, e.g. from banks giving loans Short term
Medium term Long term
External

• Overdraf
• Short-term
Loan
• Hire
Purchase

• Mediumterm Loan
• Hire
Purchase
• Leasing

• Long-term
Loan
• Shares
• Debentures

internal

• Trade Credit

• Retained
Profit

• Retained profit • Sale of
Assets
• Sale and
Leaseback

Source 1: External financial source Loan: an external financial source of my chosen company (formula 1) is loans as they need to buy new car as they may now have the fund as of yet and a loan is “An amount of money that’s borrowed from the bank, then repaid (with interest) over a set period of time” this would be short term is if its for items if a smaller nature and long term for renting a land etc.…

Advantage

•

Easy and quick to set up because they are known as a big successful business it will be easy and quick for them to get loans because banks will trust them to pay it back

•

Large amounts of money can be borrowed from the bank due to the size of there company

•

Structured repayment term this is good because the business dose not have to pay the money back all at once but at a convenient installments

Disadvantage
• Interest payable meaning the business has to pay more than they borrowed from the bank
• If repayments cannot be kept up, the business risks getting a poor credit rating or being made bankrupt