FUNDAMENTALS OF BUSINESS FINANCE. MODULE LEADER

External Sources of Finance

• Bank Loan: An expansive sum of money borrowed from a financial institution by a business or an individual.
• New partner: Business prospects might increase over the period courtesy of bringing in an additional partner from the outside market (Taylor, 1961).
• Government Grants: A fixed amount awarded by the government to a business institution, which enables a company to run job offering prospects.

Instances of internal and external sources of finance

Internal Sources of Finance

• Owners capital: A startup fund worth £200,000 could be used as capital to start a small-scale business.
• Assets: Companies that bought machinery worth £35000-80000 like printers, data processors, and others are likely to convert better revenue-based results (Galper and Musgrave, 1975).
• Retained profit: About 1/3rds of a profit worth £56000 could be used as retained profits for reinvestment.

External Sources of Finance

• Bank Loan: A business could take a substantial loan from a bank like Barclays plc worth £500,000.
• New Partner: A new partner can bring a value of £40000 to a partnership business as additional value (Galper and Musgrave, 1975).
• Government Grants: The government might grant around £250,000 for creating jobs in a borough of London for a small-sized business.

Explain why the firm should aim for a balanced portfolio of financial sources rather than one

• A balanced portfolio enables an organisation to allocate investments which might grow and contribute to better liquidity.
• Emergency funds can be aided through a balanced portfolio of financial sources, especially like maturity of stocks and mutual funds (Brown and Rocha, 2020).
• Capital preservation could be better sustained through a balanced portfolio of financial sources like a high-yielding financial sources like bank loans.
• Both short-term and long-term strategies are permitted within the business which results in better financial planning made feasible through a balanced portfolio of financial sources (Brown and Rocha, 2020).

Discuss the additional sources of finance that would be available for a large construction business

• Preference shares: These are priority rights that grant a shareholder holding ordinary shares within a construction business, to have a part in profit and asset liquidation strategies.
• Share issues: For enhancing brand awareness, a construction business ideally issues shares of the business to different investing parties to increase the liquidity base that is required by the company at major times (Choi, 1988).
• Asset securities: An asset bought by the construction business might provide a stable flow of income, as a result, it is considered an important source of finance for this form of business.

Discuss the additional sources of finance that would be available for a large construction business…(Contd)

• Business credit line: It is common for construction businesses to encounter cash flow issues, whereby they look for trustable lines of credit. For instance, it can be from the company's creditors who have a reputation or they might seek a new prospect (Harper and Madura, 2002).
• Bank Loan: At times when sales become sluggish, the bank loan provides sustainability to the construction business organisations. In such a way, the companies are better served around costly projects and in case of shortages experienced due to sudden investment of better staff, locating better sites, and other considerations.
• Contract financing: Construction project finances can be granted for a period comprising a year or more (Harper and Madura, 2002). This might bring into the fray a stability through which the financial requirements are perceived beforehand and contributed. Construction companies tend to pull higher values through such a contracting scheme.

Identify five different sources of finance

• Businesses serving out of dire necessity of finances could rely on their mortgaged security provided to banks for drawing better money.
• Cash credits are another form of financing that is controlled by the bank based on tangible guarantees and other small-time securities (Sands, 1969).
• At times banks might permit business current account holders to use their overdraft schemes, which is generally more than the fund kept in the account (Hendrie, 1980, p 234).
• Trade credit schemes have recently become popular courtesy of a surge of purchases of goods and services without immediate payment (Sands, 1969).
• Lease financing is another way through which a property or plot of land can be granted to another business for conducting their affairs, in return for a percentage or full value of the agreed-upon terms.

Identify five different sources of finance benefits and limitations…(Contd)

Benefits of the previously explained sources of finance

• The majority of the sources of finances provide faster access to monetary means that help in the fulfilment of immediate necessities.
• Access to credit at times might not require urgent payments which can be difficult for a business experiencing financial strife (Gillan et al., 2021).
• At times, these sources of finance open up additional investment opportunities for a business looking to increase its net worth shortly (Gillan et al., 2021).
• It allows businesses to participate in social support like the creation of jobs through assistance from government establishments.

Identify five different sources of finance benefits and limitations…(Contd)

• Other sources of finance include crowdfunding campaigns to gain funds from public individuals (Wang et al., 2016).
• In addition, government sources of finance are available for business loans as well.

Conclusion

The presentation has discussed sources of finance from internal and external sources, across the different contexts involving various degrees of accessibility. The findings established in the presentation highlight the increase in flexibility for business organisations, other companies and proprietors in gaining unique market value from long-term engagement. This ensures diverse business industries such as construction are capable of funding their endeavours sustainably, with assignment help in UK supporting students in understanding and analysing such financial concepts.

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