BTEC - LAD sources of finance

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Retained profits

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The profit a business makes which it keeps within the business to finance growth.

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Advantages of retained profits

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- No repayment or interest. - Owners have control. - Less risky than borrowing. - Immediate availability.

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Disadvantages of retained profits

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- Not available for new enterprises. - Insufficient profits may limit investment. - Less capital once used. - Opportunity cost of using cash.

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Selling assets

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Assets of value that a business owns and can sell to generate cash.

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Advantages of selling assets

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- Raises money from unneeded assets. - May avoid the need for a loan.

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Disadvantages of selling assets

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- May lack sellable assets. - Future need for the asset. - Time-consuming for larger assets. - May not cover full amount needed.

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Net current assets

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Also known as ‘working capital’. Cash available after deducting current liabilities from current assets.

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Advantages of net current assets

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- Quick way to raise money. - Reduces holding costs.

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Disadvantages of net current assets

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- May require accepting lower prices. - Debtors may delay payments.

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Bank Loan

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A business borrows money from a bank over a set period, e.g., 5 or 10 years. Can have fixed or variable interest rates. Medium to long-term finance.