Sources of
finance
project
Chapter 29
by Olebogeng Mohane
Business
finance
START UP CAPITAL THE CAPITAL
NEEDED BY AN
ENTREPRENEUR TO
SET UP A BUSINESS.
WORKING CAPITAL –
THE CAPITAL
NEEDED TO PAY FOR
RAW MATERIAL,
DAY-TO-DAY
RUNNING COSTS
AND CREDIT
OFFERED TO
CUSTOMERS(=
CURRENT ASSETS –
CURRENT
LIABILITIES)
The need for business
finance
Setting up a business
Working capital expenses
Emergency costs
Expansion
Development of new products
Special situations: sales decline, economic recession, etc.
survival
Short-term vs longterm need for finance
• No single source or type of finance is likely to be
suitable for all business needs. This means
managers have to decide which type and source
of finance is the best in different situations.
•Short-term finance: money required for
short periods of time of up to 1 year.
• Purpose: Working capital, daily operations, seasonal cash flow deficits
•Long-term finance: money required for
more than 1 year.
• Purpose: Capital expenditure, expansion, land & equipment