1A.) The four important sources of finance can be the following:
1) Bank Loan
2) Issuing Equity
Bank Loans are used when a company needs to borrow a large amount of money. The cost of this money is interest being charged by the banks.
The repayment schedule includes repayment of both principle and interest and usually this type of loan is collateralized. The collateral in this case will be the equipment itself. In other words, if the company fails to clear of its loan and interest, the bank will have the option of selling the equipment that was brought against loan in the open market. This process is called hypothecation and saves the bank against the risk of default.
Issuing Equity is another smart option that can be used by the company. This involves issuing shares to investors at a price determined by the company and using them to raise finance for the equipment needed by the scientists
Lease is when the other company or financing organization buys the equipment and let our company use it against monthly charges known as rentals. The benefit of this option is that the company will not have to bear the entire cost of equipment upfront and in case the company does not need equipment in the future it won’t have to pay the rental and will not have to invest huge amount into buying the product.
Hire-Purchase is like a loan to the company. The difference here is that instead of lending you the money, the bank or other financial institution buys you an asset and charges a mark-up against this assets which is amortized by the monthly payments which includes payment of both principal and the mark-up.
1b) Bank Loan is usually the most expensive option for the company. ...