Sources are determined by how much you need and when you need
Here one needs external sources of funds.one needs seed money e.g. advertisement
- Savings accumulated
- Borrowing secured by collateral
- Loan against life insurance policy.
Informal venture capital
These funds are provided by wealthy investors/business angels who see there is a potential in a certain business and they give in form of loans.
Friends and relatives-It’s always good to pay when you borrow.
Here one needs external sources of finances.
Involves investing in new product development, producing machineries and purchasing new equipment’s.
- Accounts payable(creditors)
- Equipment loans and leases
- Asset based or debt funding-you secure by working capital assets
- Formal venture capital firms-individuals who form limited partnerships for the purpose of raising capital from large investors such as universities
- Bank financing-the primary source of this finance emanates from commercial banks whereby they will request for collateral from established businesses and give them money to buy fixed assets.
- Lines of credit-informal agreements between the borrower and the bank.
- Term loans-loaned for 5-10 years
- Mortgages-they represent long source of debt and are of two types
- Chattel mortgage-movable properties e.g. vehicles or inventories serve as collateral
- Real estate mortgages-A real property e.g. land and building gives collateral and extends from 20-30 years.
A stage where the business is not in a position to expand due to inadequate cash/income and people end up relying on external sources.
The firms may decide to construct new firms.
- Public sale of stock-Examples Kengen, Kq and Mumias. This is where the firms make their stock available to general public or making initial public offers.
- Mergers- a transaction where the seller is a small business and the buyer is a large entity.