Internal and External Sources of Finance Essay

I allow for explain the different sources of finance, some of which argon internal and external to the Loxford Business unit. I will adduce the advantages and disadvantages of each of the sources of finance. Loxford Business Unit manipulation both internal and external sources to get money in order to run the Business Unit successfully. arising of FinanceDefinitionInternal or externalAdvantagesDisadvantagesApplicable to the Loxford Business UnitRetained ProfitsAn amount of money saved aside from the problem earning to be used when necessary.InternalThe money doesnt have to be repaid and there is no interest. Also they be flexible as management -have pick out control over how the money is reinvested and what portion is kept rather than paid as dividends. The disadvantages areThere will unhappy shareholders as they will retrieve lower dividends. Also retained loot is not available for new business as they main aim will be to survive and observe even, so therefore they will eit her make no profit or little profit. The Loxford Business will only use retained profit if the amount is large enough, if not then there will be no need to use the retained profit.Owners SavingsMoney from the owners personal savings.InternalCheap because there is no interest that has to be paid.Flexible the money can be used for whatever reasons the owner please.The disadvantages areIt is risky as you may waste your money.Not enough money The money may not be enough.The Loxford Business Unit may use the owners fund if there is enough available however in order for the business to expand successfully the owners fund may not be enough.OverdraftA loan arrangement under which the bank extends credit up to a maximum amount. awayFlexible- there when needed, Efficient allows a business to make intrinsic relentments and maintains cash flow.Quick quick and easy to arrange.Useful temporary cashThe disadvantages areCosts- overdrafts carry interest is often at much higher rate than loan s, therefore making it expensive for a business for long-term borrowing. Recall Unless specified in the terms and conditions, the bank can recall the entire overdraft at any time. This may happen if you fail to make other payments, or if you have broken terms and conditions though sometimes the banks simply change their policies. They are terms and conditions.The Loxford Business Unit may use an overdraft as its quick process so it will give the business immediate money. Also this attribute of finance is suitable because the money will be available when needed.Venture CapitalMoney provided by investors to start up firms.ExternalWillingness -The investors are more(prenominal) willing to invest.Gain information The investors are a valuable source of information, advice and resources. Value added services such as mentoring, alliances and advice. Provides funding that a business accompany needs to expand its business.The disadvantages areControl- the investors will expect a say in decisions.Long process- It can be a long and complicated process. piles of paper work required to provide such as a business plan, including financial records.Accounting Fee -The business will have to pay legal accounting fees whether or not they will successful in securing funds.Loxford Business Unit may use a venture capitalist for sea captain help and advice about achieving the necessary grades although this process will be long and complicated, it will be worth it in the long-term because it mean that students will get through good grades overall. Bank LoanBorrowing money from the bank over a period of time which is then to be paid back with interest.ExternalReliability Loans are very reliable and secure, you are assured the money for the duration of the loan (unless you break terms and conditions).Complicated process-Must have responsibility documentations such as business plan and cash flow forecast. Money will be paid back with interest.A bank loan will be efficient for the Loxford Baines Unit because they will be given a large sum of money, which is to be paid back slowly and in instalments.