Sources of Funds IP2

Andy should consider various factors before choosing a source of financing . The most common factors to consider are cost especially the interest rate , technology economic and political factors . In economic factors such as inflation and growth in the area is operating in should be considered , as they will affect his financial forecast . It is important that he has to put into consideration his financial forecast as this will help him to consider the sources of capital to finance his business in so doing Andy will be able to estimate the prices of his

br product and the profit he will be able to make from selling this products . Mike Neild (1993

According to (Carysforth and Neild , 1993 ) the sources available mostly depend on the amount needed , the person who need it , the use of the money and lastly the security the person will offer incase he is unable to meet his payment obligation

Andy can finance his business from following sources :-

Savings Loan

Trade credits Grants

Equity Leasing

Savings are also referred to as retained earnings or reserves . This is the amount of money that is obtained when he has deducted all the cost of the business . It can also be treated as the profit one earns after the salaries rent and other important expenses (Mike Neild (1993

Trade credit this is obtained when a trader is allowed to purchase raw materials by the suppliers and then given a period between one and three months to pay the supplier the amount one owes them in Andy 's case he can obtain additional head machines , threads and cloth materials from the supplier and then pay them later

Loan from banks Andy can obtain loan from his bank by providing well-kept and accurate financial statement and reports to the bank . When the bank consider less risky to provide the loan they can obtain the loan by providing collateral or if it is his own bank it can lend him an amount which is unsecured . He however , needs to consider the cost of borrowing that is , the interest rate (Courtland L .B , John , V .T and Barbara (2004

Equity : Andy can find investors for his operations they can be family members who work with him , friends , employee or other investors . This is by selling them shares in his business

Grants : These are form special funds which are provided by the local authorities or the government . In Andy 's case he can obtain the grant if his business falls under a certain criteria which is being developed by the government or if his operating in a marginalized area where the government is encouraging investors to invest in (Mike Neild (1993

Lease : According to IAS 17 the lease is where the Lessor to the lessee in returns for a payment or a series of payments the right to use an asset for an agreed period of time (Courtland L .B , John , V .T and Barbara (2004

The Advantages and Disadvantages of the above sources of...