Sources of Funds for Businesses - Assignment Example

Owners’ investment: - This is funds generated from the owner's savings, they are pillars of many small businesses.  Owner’s investments are used in most cases where your business doesn't have the assets to invest.Retained earnings:-This source of funds is only obtainable for a business which has been in operation for more than one year. It’s an easy source of internal funding because this is when returns made are reinvested back into the business. It’s a medium to a long-term source of funds.

Debt Collection: - A business can increase its funding by collecting debts from their debtors, however not all business has debtors thus this form is not applicable to all businesses. It’s a short-term source of funding a business.Bank Overdraft:-This is where a financial institution permits an entity to take out additional cash than it has in its savings. This means that a company may still write cheques even with no money in their accounts. It’s a short-term source of funds and can be very expensive if used over longer periods (Gregoriou, Kooli & Kraussll, 2007).

Hire Purchase:-This technique allows a business to get assets without the necessity to pay larger amounts. Involves paying the first deposit and even payments for a certain period; it’s a medium-term source of fundsMortgage:-This is a credit held on the property, payable in installments over a particular period of time usually 25 years. After the final payment, a business will officially own the property. It’s a long-term source of funds.Corporations can rely on both internal and external sources of funds because both have their advantages and disadvantages.

However, many corporations today rely on external funds due to the following reasonsMost business needs finances to grow. Even companies with greater returns cannot rely only on reinvested earnings to finance their operations. Hence, a business is required to secure bank loans, partner with other companies or any other way to raise external funds. (Smart, Megginson & Graham, 2010).