FIRMS SOURCES OF FINANCE

FIRMS SOURCES OF FINANCE

Sources are determined how much you need and when you need

START UP STAGE

Here one needs external sources of funds.one needs seed money e.g. advertisement

Personal sources/savings

  • Savings accumulated
  • Borrowing secured collateral
  • Loan against life insurance policy.

Informal venture capital

These funds are provided 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.

GROWTH STAGE.

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 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 wherethey will request for collateral from established businesses and give them money to buy fixed assets.

TYPES OF BANK LOANS

  1. Lines of credit-informal agreements between the borrower and the bank.
  2. Term loans-loaned for 5-10 years
  3. Mortgages-they represent long source of debt and are of two types
  1. Chattel mortgage-movable properties e.g. vehicles or inventories serve as collateral
  2. Real estate mortgages-A real property e.g. land and building gives collateral and extends from 20-30 years.

 Maturity stage

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.

Sources

  • 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.

 

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