Task 1

Sources of finance

Own investment: represent the money which are coming from own savings of the owner
which it might be into the form of start up capital and used when the business set up its
operation and represent a source of finance on a long term. Is having certain advantages
because there are not repaid and there are no interest paid but on the other hand there is the
main disadvantage of the amount limit which an owner is able to invest. (A. Beattie et al,
2012)

Hire purchase- here assets are being purchased without being able to pay its entire price.
This source of finance is cheaper than a loan because the ownership is secured by the
organisation finance but if the organisation is missing the payments than will have some
problems. Are being obtain into an easy manner and their deposit is being low but the
monthly rates which must be paid are high because of the payment of the interests on the
entire values which the organisation is willing to acquire for a short time period.

Bank Loans this one is having interest which are legal and these ones can be fixed or it
can be variable but bank loan is being secured against assets. The organisation is able to get
loans for anything it wants within a quickly manner as well as the needed funds. But if the
organisation is missing any payment than this one will be facing serious problems.

Loans from family and friends A source of finance for a business which is starting up is
represented by borrowings from friends and family. They are being more flexible than other
lenders such as they are offering loans without agreement to a repayment period longer or
security. However, misunderstandings about agreement it may damage the relationship so is
important formalizing the agreement with an agreement which is written.

 Implication of sources of finance

Own investment: in order to finance my business into expanding it this source of finance is
the most appropriate because the control over the business is not diluted; there are no
obligations to pay dividends to stakeholders but this source of finance also is having some
implications which regards the bankruptcy because of the assets residual of the business
which is being last paid. (, 2005)

Hire purchase
There is required an agreement such as legal implications, it can be enjoyed tax credits; the
customers are able for claiming their equipment depreciation as deduction of tax. The control
over the organisation is not being diluted and also the organisation is not any bankruptcy
implications.

Bank loan

Loan as well as other source of finance is having certain implications for that Woods must
take into consideration the profitability which is being generated by the extra debt capital. If
the company is unable to meet the repayments it might cause an inefficient valuable use of
the time and there will be certain penalties known as interest rates which might increase into
the late payments. If the organisation will deteriorate its situation than all its securities listed
for the required loan will be confiscated by the bank which means that all of them will be
lost. (Mclaney, 2006)

Loan from family and friends

Borrowings from friends and family could be made under a formal agreement for
preventing misunderstandings. An independent person should witnesses this agreement.
There are certain loans which are interest-basing while there are certain interest-free. The
control is not diluted and there are no bankruptcy implications. For example sole partnership
is having less financing sources as compared with other business forms so this one is
considered an essential source of finance. An individual which is known well the owner and
which believe in the vision of the owner represent a source of finance. This one is having a
low interest rate because the owner is making the investment out of confidence into the
individual and belief into the vision rather than the desire of making money.

Source of finance available to organisations

Loan
For expanding its business Aldi might use as source of finance the bank loan which for
growing the business is providing various advantages such as the business will have interest
rates which will be fixed for the term which make easy to forecast the payments regarding
interest, while there must be paid this interest within the loan, the bank will not be provided
with a share into the business.

Loan from family and friends

In order to finance a start-up business such as opening a store with bicycles and parts of it
the appropriate way is to use their own savings but if there are not enough loan from family
or friends are taken into consideration because is having the advantage of less payments of
the interest than other source of finance and n appropriate time will be given for paying back.

Hire purchase

For financing Woods business into buying new computers as well as other equipments to
use for having a better performance within the business the company might choose hire
purchase as source of finance. This is providing the company various advantages such as it
can use the assets immediately without having the necessity of paying the entire amount as
well as the assets which are expensive might be utilized as there is spread the payment over a
time period. This represents a secured financing so is presenting an easy accessibility.