1. Sources of Finance
Finance sources may be internal or external,
but they may also be short, medium or long
term:
• Short Term: Finance the business for up to
1 year.
• Medium Term: Finance the business for up
to 5 years
• Long term: Finance the business for more
than 5 years.

2. Short, Medium and Long Term Finance
Long Term Medium Short Term
Term
Personal Personal Personal
Sources Sources Sources
Ordinary Share
Capital
Loan Loan
Capital/Bank Capital/Bank
Loan Loan
Bank Overdraft
Venture Capital

3. Choosing a Source of Finance
• Legal Structure – PLCs and LTDs can sell
shares, Sole Traders and Partnerships
cannot
• The use of the finance – large expensive
machinery will require a long term source,
paying off an outstanding account will only
require a short term source

4. Choosing a Source of Finance
• The amount required – The larger the sum, the less
likely the owners are to be able to raise the money
internally. However, lenders often want to see that
the borrower is also taking a risk so may be a
combination.
• Profit levels – The higher the profits the more
money to use from internally. A firm with low
profits (which needs the money the most!) will
find external sources hard to find.

5. Choosing a Source of Finance
• Level of Risk – A risky enterprise will find it
harder to raise capital, although venture capital
may be available. May have to rely on personal
sources.
• Views of the owners – May be reluctant to lose
control of a firm, especially a family firm and thus
reject shares and venture capital. However, some
may welcome the advice a venture capitalist can
give.

6. Choosing a Source of Finance
• Level of Risk – A risky enterprise will find it
harder to raise capital, although venture capital
may be available. May have to rely on personal
sources.
• Views of the owners – May be reluctant to lose
control of a firm, especially a family firm and thus
reject shares and venture capital. However, some
may welcome the advice a venture capitalist can
give.