Managing Financial Resources & Decisions



Managing Financial Resources & Decisions

Task 1

Alternative sources of finance available to a business

In the event of insufficient equity, a business can borrow from a financial institution or a bank. Banks and financial institutions often lend sufficient loans to established businesses or new investors and potential businessmen. These loans are granted against a suitable payback period making it easy for the borrower to repay the borrowed sum.

A business may also use the overdraft facility provided by the banks. Overdraft is crediting the bank checking account to pay for their client settlement documents in case of insufficiency or absence on the current account of the borrowing client funds. In this case, the bank debits the money from the customer's account in full, that is, automatically gives the client a loan in an amount exceeding the remainder of funds.

Another source of finance for a business is borrowing the loan from the supplier. An account payable from the supplier is any amount owed ??as a result of purchase of goods or services in terms of credit.

A business can also use bonds as the source of finance. It is a tool written in the form of an unconditional promise, certified, in which the borrower promises to pay a specified sum at a future date certain, together with interest at a rate determined and dates.

Implications of sources of finance

In credit from the bank, the business can have implications like a very strict bank conditions that may unduly restrict the ease of operation and be detrimental to the profits of the business. A high borrowing rate may prove to be a hurdle in running a profitable business as major part of the profits will be used to pay the interest on loan.

In the bank overdraft, the business can have problems as it does not only provide benefits; it is clear from a comparison overdraft. One of the drawbacks is the high bank overdraft interest rate that banks charge. This is not uncommon for more than 15 % per anum.

In borrowing from supplier or using the credit facility from the supplier, a business can start-up and establish the business and as it starts earning, it may start paying for the goods purchased on credit from the suppliers. But not all suppliers are willing enough to sell a large quantity of goods on credit as huge risks are associated with it.

Borrowing using bonds may lead to legal consequences in the event of failure in repaying the loan along with the interest on the promised date. But if the borrower is confident enough, he may use this source for financing the business.

Task 2

Sources of finance most suitable for my project

In order to expand my business, I will need a significant amount of money to invest. For this reason, I took into account different sources of finance.

The most appropriate source of finance for my project is the loan from the bank or the credit from the bank. It is a type of short - terms ...