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P4 – Describe Sources of Internal and External Finance for a Selected Business

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P4 – describe sources of internal and external finance for a selected business
Caledonia is a small takeaway outlet shop that sells chicken burgers, chips and drinks. It is located in Harlesden, near the estates. This is so that they can get a lot of customers coming in and out of there shop.
There are two ways that Caledonia can get financial resources: * From within the business (internal sources) * From outside the business (external sources)
Internal sources
Caledonia can get financial resources internally from the business owner’s saving or from the profit that Caledonia makes.
Owner’s savings
The sole trader of Caledonia will have to use his own savings to start the business. This is because sometimes a bank may not want to invest in the business, because they don’t want to take the risk.
Capital from profits Source | Details | Benefits | Drawbacks | Banks | Banks are able to offer loans, business accounts, commercial mortgages and overdraft facilities based on the business plan. Interest is payable based on the predicted risk. Some security will need to be provided, for example, assets such as a house. | * Quick and simple to start up * Various amounts of money can be loaned * Controlled repayment term | * Interest is allocated to the loan * Business can go bankrupt or get a poor credit rating if payments aren’t on schedule | Building societies | Building societies are also able to offer loans, business accounts, commercial mortgages and overdraft facilities based on the business plan. Interest is a payable based on the risk of the venture. As with banks, some security will need to be provided, such as assets. | * Various amounts of money can be loaned * Return payment is controlled | * If resources are limited, it’s harder to move a group | Hire purchase | Hire purchase means that resources can be used by the

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