Sources of Finance
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Financial Needs

Businesses require finance for:

  • Starting up
  • Running the business on a day-to-day basis
  • Expanding and developing

It is most important that a business selects the most suitable source of finance. A business must first be clear as to the financial needs of the business.

Terms of Finance

The financial needs of a business can be divided into:

  • Short term
    • Wages
    • Telephone, gas, electricity bills
    • purchase of goods for resale
  • Medium term
    • Motor vehicles
    • Computers
  • Long term
    • Buildings
    • Machinery

The sources of finance for a business can also be classified into short, medium and long term. These sources are as follows:

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These sources marked with an * are free sources of finance i.e. they do not cost the business money. Firstly, it is important for business to identify its needs and then to choose a suitable source of finance e.g. a short need should be financed by a short-term source of finance.

Applying For Loans

When applying for a loan a business will have to complete a loan application form to supply certain information such as:

  • Business history

  • Details of product or service sold

  • Purpose of loan

  • Amount of loan

  • Proof of ability to repay loan

  • Security available in case the loan cannot be repaid
When a business receives a loan from a financial institution it must record it in its bank account (debit side) and in an account of the lender e.g. AIB Ltd (credit side).

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