Discuss sources of finance. Equity/ownership financing, Debt/asset-based financing.

Equity/ownership financing involves raising capital by selling ownership stakes in a company. This can be done through issuing shares of stock to investors or bringing on partners who contribute capital in exchange for a share of ownership in the business. Equity financing does not require the business to make regular interest payments, but it does dilute the ownership stake of existing shareholders.

Debt/asset-based financing involves borrowing money from lenders or financial institutions. This can take the form of traditional bank loans, lines of credit, or bonds. Debt financing requires the business to make regular interest payments and repay the principal amount borrowed according to a set schedule. The advantage of debt financing is that it allows the business to retain full ownership and control, but it also carries the risk of default if the business is unable to make its debt payments.

Other sources of finance include:

- Grants and subsidies: Some businesses may be eligible for government grants or subsidies to help fund their operations or specific projects. These funds do not need to be repaid, but they often come with strict eligibility criteria and reporting requirements.

- Crowdfunding: Crowdfunding platforms allow businesses to raise capital from a large number of individual investors or donors. This can be a good option for startups or small businesses looking to raise funds for a specific project or product launch.

- Venture capital: Venture capital firms invest in high-growth startups in exchange for an equity stake in the company. Venture capital funding can provide a significant amount of capital and expertise to help the business grow, but it often comes with strict terms and conditions.

- Angel investors: Angel investors are wealthy individuals who provide capital to startups in exchange for equity ownership. Angel investors can provide valuable mentorship and networking opportunities in addition to funding.

- Personal savings: Many entrepreneurs use their own savings or assets to fund their businesses. While this can be a risky strategy, it allows the business owner to retain full control and ownership of the business.

Overall, the best source of finance for a business will depend on its specific needs, goals, and financial situation. It is important for business owners to carefully consider their options and choose the financing option that best aligns with their long-term objectives.

Sources of Finance

Equity/Ownership Financing

- Ordinary shares: Represent ownership in the company. Shareholders receive dividends and have voting rights.
- Preference shares: Similar to ordinary shares, but offer fixed dividends and priority in asset distribution.
- Venture capital: Investments made by specialized firms in early-stage companies with high growth potential.
- Angel investors: Individuals who provide seed funding to small businesses or start-ups.

Debt/Asset-Based Financing

- Bank loans: Short-term or long-term loans taken from banks. Secured or unsecured depending on collateral.
- Overdraft: A flexible line of credit from a bank that allows businesses to borrow against their current account.
- Trade finance: Short-term loans used to finance the purchase or production of inventory.
- Leasing: Contracts that allow businesses to use equipment or property without purchasing it outright.
- Factoring: Selling accounts receivable to a factoring company in exchange for immediate cash.
- Debentures: Long-term, fixed-rate loans that are not secured by specific assets.

Other Sources of Finance

- Government grants: Grants or subsidies provided by government agencies to support specific projects or industries.
- Crowdfunding: Raising funds from a large number of individuals through online platforms.
- Internal sources: Retained earnings, depreciation, and other internal sources of cash flow.
- Hybrid financing: Combinations of equity and debt, such as convertible bonds or hybrid loans.

Factors Influencing Choice of Finance

- Risk tolerance: Equity financing is riskier for investors but offers higher potential returns.
- Cost of capital: Debt financing tends to be cheaper than equity financing, but carries interest and repayment obligations.
- Control: Equity financing dilutes ownership, while debt financing maintains control with the business owner.
- Flexibility: Equity financing is more flexible, while debt financing can impose restrictions on operations.
- Tax implications: Interest on debt is tax-deductible, while dividends on equity are not.