There are mainly eight types of financing options for small firms in UK. The advantages and
disadvantages are listed below:
1)
FAMILY LOANS:Advantages:
1) No security is required.
2) Profit is distributed among the family members so it stays at home.
Disadvantages:
1) Since there is no security required so it can strain the family relationship if repayment is not made as expected.
2) If business fails, entire family suffers.
3) Family members? unwanted interference is unavoidable.
2) BANK OVERDRAFT:Advantages:
1) Its flexibility is speciality of such
financing. Once agreed, it can be availed on demand.
2) Interest is payable when the borrower uses it so it saves cost.
Disadvantages:
1) It is repayable on demand. Terms are not fixed.
2) It needs security against business assets.
3) It requires sufficient security, due to lack of which, it can?t be granted.
4) Rate of interest is usually higher than loans.
3) BANK LOANS:Advantages:
1) Terms of loan is fixed i.e. it is not repayable on demand.
2) Interest and capital repayment are fixed and known in advance so it helps borrower to plan the amount and terms for borrowing.
3) Rate of interest is usually lower than Bank Over- Drafts.
Disadvantages:
1) It needs security against business or personal assets.
2) Sufficient security is needed otherwise can be refused.
3) Require good cash flow for repayment.
4) FACTORING & INVOICE DISCOUNTING:Advantages:
1) Security is on debts generated by sales so increase in sales increases finance availability.
2) Interest and charges are deducted from the profit of the firm so no chances of missing repayment.
Disadvantages:
1) Rate of interest is usually higher than that of bank loans.
2) Certain conditions are imposed including checks on new customers.
5) LEASE & HIRE-PURCHASE:Advantage:
1) Security is on assets purchased so no extra security is needed.
Disadvantages:
1) Rate of interest is higher than Bank Loans.
2) Adequate Cash-flow is required to meet regular repayment.
There are mainly eight types of financing options for small firms in UK. The advantages and disadvantages are listed below: