Source of Finance - Essay Example

Only on StudentShare

Extract of sample
Source of Finance

However interest on overdrafts is usually greater than interest on other loans and banks even charge an overdraft facility fee. The company should therefore put all these in to consideration and make sure that the benefits to be achieved from the overdraft outweigh the costs associated with taking the overdraft.
Also, overdrafts do not cover all financing requirements. The company should therefore assess whether its financing requirements are long-term or short-term. If short-term, then an overdraft can be a right source of funding but if long-term then an overdraft would be an inefficient way to raise funds since the overdraft would be required on demand by the bank. If that be the case the company might go into financial distress and subsequently bankruptcy.
In addition, collateral security might be needed by the bank in the form of a tangible fixed asset or against personal guarantee provided by the directors. It this case, the company should consider the nature of its fixed assets and asses which assets it can put up as collateral. Another determining factor for the overdraft is the firm's cash flows, timing and receipts of payments, sales trends and other cash flows. ...
Download paper


Overdraft financing is obtained by overdrawing the business' bank account so as to make pavements to suppliers or to settle other operating expenses. This facility will enable the business to obtain a short-term loan despite the fact that in theory the amount loaned is repayable on demand.
Author : gracielaharris

Related Essays

Accounting and finance for managers
The Return on Capital Employed ratio is used to analyse a company's position in terms of the return or profit it gains on the funds invested by the company's shareholdersIt shows the effectiveness of the company's management It shows the effectiveness and performance of the company's management to obtain more returns on the shareholders' investment. It is of importance to the company's management as well as investors and shareholders being a performance indicator for the company. The ROCE ratio for the Glaxo Smithkline plc is 102.78%, which shows that the company has been able to utilise the...
5 pages (1255 words) Essay
Finance assignment1
The company can avail debt capital in various forms such as bonds, long term loans from banks and financial institutions etc. Bond is the most common form of debt security issued by a corporation. Bonds are issued by governments also in time of financial crisis. Debt is the least cost and hence the most popular source of capital for corporations. In addition to that it has many advantages. As bonds are the common form of debt capital, bonds and debt are often used interchangeably. Moreover, the attributes of bonds as a source of long term capital are similar to any other debt capital....
9 pages (2259 words) Essay
Discuss the factors influencing the entrepreneurs demand for a specific source of finance at the startup stage, with respect to Meyers Pecking Order Hypothesi
The following paragraphs explain what is in the mind of the managers when they decide whether to use the Pecking Order Model or the Trade -off Model are used....
6 pages (1506 words) Essay
Business/Finance (islamic Finance)
This sheer increase in the number of banks and their market capitalisation is a point of concern for financial analysts and public in general. Is it a short lived tale, is it here to stay, what could be the determinants of such high growth, will this growth continue, and what could be some of the challenges it will face in years to come. These are all questions that arise in any mind that sees a growth of such magnitude and intensity, in such short period of time....
4 pages (1004 words) Research Proposal
Corporate Finance Math Problem
Liabilities on the other side also increased due to the expansion, while the equity deteriorated little bit in the year 2007 by 0.106 million because of the net loss of the company....
8 pages (2008 words) Math Problem
Introduction to Accounting and finance -- Economics, Finance and Management
They may buy from either U.K or South America depending upon the option which will help them to increase the cash flow....
4 pages (1004 words) Assignment
International Finance Question
When compared to a bank loan a bond tends to give the investor better terms, in loans the bank set the interest rates where else when a company issues a bond, the company controls the interest rates (Levi, 2009). Foreign bonds are also a good method of funding expansion to other countries because they protect the firm from currency fluctuation in the country of interest. The greatest disadvantage of bonds, however, is that it will reduce the firm’s trading flexibility. This is because the firm cannot trade out of a bond that is doing well while it maintains its other holdings (Levi, 2009)....
1 pages (251 words) Coursework
Got a tricky question? Receive an answer from students like you! Try us!