Sources of Finance for Businesses in the UK | London School of Science & Technology

London School of Science & Technology
ASSESSMENT COVER SHEET
Unit Number and
Title
Assessment Title
Course Title
Assessment Code
Unit 2: Managing Financial Resources and Decisions – Level 4
Managing Financial Resources and Decisions
HND Business
HND Bus-Unit 2/Managing Finance July 2013
Hand Out Date 29th July 2013 Hand In Date 21st September 2013
Lecturer(s)
John Owen
Michael Evans
Dhaneswar
Chooramun
Jane Evans
Vijay Shah
Anuja Prashar
Shohail Choudhary
Internal
Verifier Jonathan Cartmell
Sources of
information
1. Course Notes / Slides / Activities / Handouts.
2. Recommended Learning Textbooks:
BPP Business Essentials Managing Finance
3. Recommended Learning Web link:
 Tutor2u
To be filled by the student FINAL VERSION YES/NO (Delete as
appropriate)
Student
Name Maria Mihaela Buzas Lecturer Michael Evans
Student ID H1307048 Group(e.g.) MFRO 49(9)
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and time.
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Pass
In order to achieve Pass, students must achieve all the pass criteria below.
Source: Google Images
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Q 1.1
Identify and describe at least six sources of finance that are available to businesses in
the UK.
Guidelines: (Approx. 150 words) Recommended Interim Deadline: 4th August 2013
In order to complete the above task, your answer should include the following:
 Identify six sources of finance and provide a brief description of each source identified
In answering this question, you will have covered the following assessment criterion:
 1.1 Identify the sources of finance available to a business.
Finance refers to source of money for a business to start up, run and then expand. There are mainly two
sources of finance – internal & external. Some of the popular sources of finance for business in UK are:
 Banks – These are the most widely used start-ups for the business in UK. Bank offer overdrafts as a
form of short term finance and Terms loans are considered to help businesses in buying supplies and
equipments such as fixed assets, machinery or office equipments etc (Broadbent and Cullen, 2012).
 Grants – Under grants funding appear from EC and UK government sources, it is better option for
businesses seeking finance for specific projects.
 Business Angels – Often high net worth individuals, Business Angels invest in high growth businesses
on their own or as part of a syndicate. Besides providing finance angel investors also provide their own
ideas, skills and contacts to businesses (Carey, 2001).
 Own finance – One can start its own business by using its own financial resources. This money can be
available in form of personal savings or fixed deposits or investments.
 Loans – It’s not just the banks that provide the loans but there are also other business support
organization and agencies which provide finance to businesses in UK.
 CDFA – Based in UK, Community Development Finance Association provides loans and support to
businesses, charities, social enterprises etc (Collis and Jarvis 2002).
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Q.1.2
Assess the implications and costs (if any) of the identified sources of finance available
to UK businesses.
Guidelines: (Approx. 150 words) Recommended Interim Deadline: 6th August 2013
In order to complete the above task, your answer should:
 Assess the effects of these sources of finance on control of the business.
In answering this question, you will have covered the following assessment criterion:
 1.2 Assess the implications of different sources of finance.
Businesses in UK have many sources of finance available for the business activities. Typically it is not advised
to fund the start-up for the business from own funds, loans or credit not necessarily customized to the business
requirements and needs. Bank overdrafts and term loans are fine way of covering any instability or fluctuation
of funds coming in and out of business (Deakins, Morrison and Galloway, 2002). Grants can be defined as the
trustable source of funds as the finance comes from the government sources, businesses can search for grants
available in different regions and can find further information on their websites. Angel investors is the
growing trend in the business world, apart from arranging finance they also provide their suggestions, skills,
talent and experience to the businesses in UK (Dittenhofer, 2001). The National Network Enterprise is a good
example of loan for the businesses. Mostly based within the UK’s most disadvantaged communities the
Community Development Finance Associations represent a system of regional community fiancé institutions
in every local region of UK. (Fairchild, 2002).
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Q.1.3
Highlight the advantages and disadvantages of the different sources of finance that
you have chosen (Q1.1) as suitable for any business in the UK.
Guidelines: (Approx. 150 words) Recommended Interim Deadline: 9th August 2013
 List the advantages and disadvantages of the six different sources of finance that you
consider suitable for your chosen business in Q1.1.
In answering this question, you will have covered the following assessment criterion:
 1.3 Evaluate appropriate sources of finance for a business project.
Own finance makes a great source of capital for the business because possession costs are minimum and
business will not be paying any interest or other charges on loans. Drawback is that if the personal savings is
plowed into the business, it will lose it all in case if business doesn’t runs (Gloy and LaDue, 2003).
Arranging a group of investors can help in raising startup and expansion of capital without inserting the
entire risk on the company alone. The disadvantage of bringing in investors is that the company losses a
certain element of control over the business (Carey, 2001). Bank loans enables to keep cash on hand which
can be use as the operating capital or for personal survival during the decline of the business on the other side
the drawback is the interest charged on the loan, bank will ask for interest whether the business is running
good or bad.
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Q 2.1
You intend to set up your own business. In order to do this, you will need to consider
the amount of finance required to achieve this objective. Consider how much finance
you would need for premises, staff, marketing etc. Note: Make sure you show how
much investment you need and why. Also make sure you provide a brief synopsis of
the business.
Select the sources of finance (identified in Q1.1) that are the most suitable for your
project and explain why they are the most suitable. Analyse the cost of these sources
of finance
Guidelines: (Approx. 180 words) Recommended Interim Deadline:12th August 2013
• From the sources of finance selected choose at least 3 different sources that are
suitable to your business, and justify your selection.
• Analyse the costs of the different types of finance available to the business.
In answering this question, you will have covered the following assessment criterion:
 2.1 Analyse the costs of different sources of finance
Setting up own business requires suitable source of finance available for its start-up. Presently I want to start
a business dealing in producing equipments, tools and machinery for schools, colleges and educational
institutes in UK. It will need £500,000 for the business to start and £100,000 out of it will be needed for the
premises, staff and marketing (Lam, 2010). Out of the above identified sources of finance three of them are
most suitable for the described business.
Bank loans are like the supermarket for debt financing providing short term and long term financing
and they arrange funds for all asset needs, including equipment, working capital etc. Unlike other financing
terms banks offer some flexibility, the business can pay off the loan early and finish the agreement, (Leung,
2011) VCs and other institutional investors may not be so amenable. Angel investors are also the better
medium of raising the funds for the business, if one must sell an ownership to get the company off the
ground, start by finding a respected industry executive who is agreeable to spend a reasonable amount and
give venture credibility with other investors. The advice and networking without all the heavy handed
demands of a VC come in handy too (Li, 2003). Many small business administration offer grants to help
new companies to start the business, grants are fundamentally free money and government guaranteed loans
come with interest rates that are usually far below what one can get on its own (Dittenhofer, 2001).
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