External finance - Banks
Bank overdraft
A bank overdraft is a facility that will allow you to withdraw more money from your account than is available. A bank overdraft is a short term source of finance.
| Advantages | Disadvantages |
| Can be arranged quickly | Expensive as a high rate of daily interest is charged |
| Usually only available for small sums of money |
| Advantages | Can be arranged quickly |
|---|---|
| Disadvantages | Expensive as a high rate of daily interest is charged |
| Advantages | |
|---|---|
| Disadvantages | Usually only available for small sums of money |
Bank loan
A bank loan is a long term source of finance. It is a fixed amount of money that is given to a business by the bank that has to be repaid over time with Interest is the annual charge for borrowing money. It is usually expressed as a percentage of the total borrowed., usually in monthly Smaller chunks that a large payment is broken down into that are paid back over a period of time..
| Advantages | Disadvantages |
| Can be arranged quickly | Interest has to be paid in addition to the loan amount |
| Loan can be repaid over a long period of time |
| Advantages | Can be arranged quickly |
|---|---|
| Disadvantages | Interest has to be paid in addition to the loan amount |
| Advantages | Loan can be repaid over a long period of time |
|---|---|
| Disadvantages |
Commercial mortgage
A commercial mortgage is a long term source of finance. It is a sum of money borrowed from the bank that is secured against a business property and paid back in Smaller chunks that a large payment is broken down into that are paid back over a period of time., usually over a long period of time.
| Advantages | Disadvantages |
| Mortgage is given for a long period of time | Interest is charged on the loan |
| Large amounts of finance can be raised quickly | Property can be lost to the mortgage lender if repayments are missed |
| Advantages | Mortgage is given for a long period of time |
|---|---|
| Disadvantages | Interest is charged on the loan |
| Advantages | Large amounts of finance can be raised quickly |
|---|---|
| Disadvantages | Property can be lost to the mortgage lender if repayments are missed |
Debt factoring
Debt factoring is a short term source of finance where firms sell their invoices to a factor such as a bank. They do this for some cash right away, rather than waiting 28 days to be paid the full amount.
| Advantages | Disadvantages |
| Time and effort is saved as the company is no longer required to recover unpaid debts | Money is lost from the business as unpaid debts are sold at a reduced value |
| Advantages | Time and effort is saved as the company is no longer required to recover unpaid debts |
|---|---|
| Disadvantages | Money is lost from the business as unpaid debts are sold at a reduced value |