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Lauren
05/09/2025
Business
Higher business
723
•
5 Sept 2025
•
Advantages and Disadvantages of Retained Profit and Loans in Business
Lauren
@lauren_b
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Transform this note into: ✓ 50+ Practice Questions ✓ Interactive Flashcards ✓ Full Mock Exam ✓ Essay Outlines
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Sources of Finance: A Comprehensive Guide
This document provides an in-depth look at various sources of finance available to businesses, explaining their characteristics, benefits, and drawbacks.
- Covers a wide range of financing options, from internal to external sources
- Explains key features and implications of each financing method
- Suitable for students and entrepreneurs seeking to understand business financing options
Retained Profit
Retained profit refers to profits from previous years reinvested into the company.
Definition: Retained profit is profit that has been made by the business in previous years that is then reinvested back into the company.
Advantages of retained profit include:
- Can be used for larger purchases or bulk buying
- The business doesn't incur debt
Highlight: Using retained profit for expansion can be advantageous as it doesn't require external borrowing.
Disadvantages of retained profit include:
- It may take too long to accumulate, potentially causing missed business opportunities
Vocabulary: Retained profit disadvantages refer to the limitations of using this internal source of finance.
Sale of Assets
This involves selling items the business no longer needs, such as machinery or transport.
Advantages:
- Raises money to reinvest in other areas of the business
- Boosts cash flow
Disadvantages:
- If finance is urgently required, assets may be sold for less than their worth
Share Issue
Available only to private or public limited companies, this involves issuing more shares to obtain finance.
Advantages:
- Large amounts of finance can be raised
- Finance doesn't need to be repaid
Disadvantages:
- Shareholders need to be paid dividends annually
- Shareholders become part-owners of the business
Example: A growing tech startup might issue shares to fund its expansion into new markets.
Bank Loan
A long-term source of finance where a fixed amount is borrowed and repaid with interest over time.
Advantages of bank loans for business include:
- The business can budget for repayments
- Essential equipment can be purchased in advance and paid back over years
Highlight: Bank loan advantages and disadvantages should be carefully considered before borrowing.
Disadvantages of bank loans in business:
- Interest must be repaid along with the loan amount
- Small businesses may find it harder to secure loans and often face higher interest rates
Commercial Mortgage
A long-term finance source secured against a business property and repaid in instalments.
Advantages:
- Mortgage is given for a long period
- Large amounts of finance can be raised quickly
Example: A restaurant owner might use a commercial mortgage to purchase the building they operate in.
Disadvantages of mortgage in business:
- Interest is charged on the loan
- Property can be lost to the lender if repayments are missed
Debt Factoring
A short-term finance source where firms sell their invoices to a factor for immediate cash.
Advantages:
- Time and effort saved on recovering unpaid debts
Disadvantages:
- Money is lost as unpaid debts are sold at a reduced value
Debentures
Loans given to the business by individuals, with interest paid annually and the loan repaid in full at an agreed future date.
Advantages:
- Control of the business is retained
- Can be paid back over a long period
Disadvantages:
- Interest must be paid even if the company makes a loss
Government Grants
Fixed amounts of money awarded by the government, EU, or charitable organizations, often with specific conditions.
Definition: A grant is a fixed amount of money usually awarded by the government, EU, or charitable organisations, given on the condition that certain criteria are met.
Advantages and disadvantages of government grants: Advantages:
- Does not need to be repaid
- Often offered as an incentive to help businesses start or expand
Disadvantages:
- Business needs to meet certain criteria
- Time-consuming application and paperwork process
Venture Capital
Money provided by investors to starting or expanding companies, often involving higher risk.
Venture capital advantages and disadvantages: Advantages:
- Large amounts of investment can be gained
- Venture capitalists are willing to take on riskier investments than banks
Disadvantages:
- Control and a share of profits are given up to venture capitalists
Crowd Funding
Small amounts of money raised from a large number of people, typically through the internet.
Advantages:
- Finance can be raised from individuals when banks see a venture as too risky
- Some funds are donated, requiring no repayment
Disadvantages:
- Public requests for investment risk the project being copied by competitors
- If the targeted amount isn't reached, the money is returned to investors and the business gets nothing
Highlight: Understanding the advantages and disadvantages of retained profit, bank loans, mortgages, and other financing options is crucial for making informed business decisions.
We thought you’d never ask...
What is the Knowunity AI companion?
Our AI Companion is a student-focused AI tool that offers more than just answers. Built on millions of Knowunity resources, it provides relevant information, personalised study plans, quizzes, and content directly in the chat, adapting to your individual learning journey.
Where can I download the Knowunity app?
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4.9/5
App Store
4.8/5
Google Play
The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.
Rohan U
Android user
I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.
Xander S
iOS user
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user
The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.
Rohan U
Android user
I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.
Xander S
iOS user
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user
Advantages and Disadvantages of Retained Profit and Loans in Business
Lauren
@lauren_b
This is a comprehensive overview of various sources of finance for businesses, detailing their descriptions, advantages, and disadvantages. The document covers a wide range of financing options, from internal sources like retained profit to external sources such as bank loans,... Show more
Sources of Finance: A Comprehensive Guide
This document provides an in-depth look at various sources of finance available to businesses, explaining their characteristics, benefits, and drawbacks.
- Covers a wide range of financing options, from internal to external sources
- Explains key features and implications of each financing method
- Suitable for students and entrepreneurs seeking to understand business financing options
Retained Profit
Retained profit refers to profits from previous years reinvested into the company.
Definition: Retained profit is profit that has been made by the business in previous years that is then reinvested back into the company.
Advantages of retained profit include:
- Can be used for larger purchases or bulk buying
- The business doesn't incur debt
Highlight: Using retained profit for expansion can be advantageous as it doesn't require external borrowing.
Disadvantages of retained profit include:
- It may take too long to accumulate, potentially causing missed business opportunities
Vocabulary: Retained profit disadvantages refer to the limitations of using this internal source of finance.
Sale of Assets
This involves selling items the business no longer needs, such as machinery or transport.
Advantages:
- Raises money to reinvest in other areas of the business
- Boosts cash flow
Disadvantages:
- If finance is urgently required, assets may be sold for less than their worth
Share Issue
Available only to private or public limited companies, this involves issuing more shares to obtain finance.
Advantages:
- Large amounts of finance can be raised
- Finance doesn't need to be repaid
Disadvantages:
- Shareholders need to be paid dividends annually
- Shareholders become part-owners of the business
Example: A growing tech startup might issue shares to fund its expansion into new markets.
Bank Loan
A long-term source of finance where a fixed amount is borrowed and repaid with interest over time.
Advantages of bank loans for business include:
- The business can budget for repayments
- Essential equipment can be purchased in advance and paid back over years
Highlight: Bank loan advantages and disadvantages should be carefully considered before borrowing.
Disadvantages of bank loans in business:
- Interest must be repaid along with the loan amount
- Small businesses may find it harder to secure loans and often face higher interest rates
Commercial Mortgage
A long-term finance source secured against a business property and repaid in instalments.
Advantages:
- Mortgage is given for a long period
- Large amounts of finance can be raised quickly
Example: A restaurant owner might use a commercial mortgage to purchase the building they operate in.
Disadvantages of mortgage in business:
- Interest is charged on the loan
- Property can be lost to the lender if repayments are missed
Debt Factoring
A short-term finance source where firms sell their invoices to a factor for immediate cash.
Advantages:
- Time and effort saved on recovering unpaid debts
Disadvantages:
- Money is lost as unpaid debts are sold at a reduced value
Debentures
Loans given to the business by individuals, with interest paid annually and the loan repaid in full at an agreed future date.
Advantages:
- Control of the business is retained
- Can be paid back over a long period
Disadvantages:
- Interest must be paid even if the company makes a loss
Government Grants
Fixed amounts of money awarded by the government, EU, or charitable organizations, often with specific conditions.
Definition: A grant is a fixed amount of money usually awarded by the government, EU, or charitable organisations, given on the condition that certain criteria are met.
Advantages and disadvantages of government grants: Advantages:
- Does not need to be repaid
- Often offered as an incentive to help businesses start or expand
Disadvantages:
- Business needs to meet certain criteria
- Time-consuming application and paperwork process
Venture Capital
Money provided by investors to starting or expanding companies, often involving higher risk.
Venture capital advantages and disadvantages: Advantages:
- Large amounts of investment can be gained
- Venture capitalists are willing to take on riskier investments than banks
Disadvantages:
- Control and a share of profits are given up to venture capitalists
Crowd Funding
Small amounts of money raised from a large number of people, typically through the internet.
Advantages:
- Finance can be raised from individuals when banks see a venture as too risky
- Some funds are donated, requiring no repayment
Disadvantages:
- Public requests for investment risk the project being copied by competitors
- If the targeted amount isn't reached, the money is returned to investors and the business gets nothing
Highlight: Understanding the advantages and disadvantages of retained profit, bank loans, mortgages, and other financing options is crucial for making informed business decisions.
We thought you’d never ask...
What is the Knowunity AI companion?
Our AI Companion is a student-focused AI tool that offers more than just answers. Built on millions of Knowunity resources, it provides relevant information, personalised study plans, quizzes, and content directly in the chat, adapting to your individual learning journey.
Where can I download the Knowunity app?
You can download the app from Google Play Store and Apple App Store.
Is Knowunity really free of charge?
That's right! Enjoy free access to study content, connect with fellow students, and get instant help – all at your fingertips.
Smart Tools NEW
Transform this note into: ✓ 50+ Practice Questions ✓ Interactive Flashcards ✓ Full Mock Exam ✓ Essay Outlines
Mock Exam
Quiz
Flashcards
Essay
Can't find what you're looking for? Explore other subjects.
Students love us — and so will you.
4.9/5
App Store
4.8/5
Google Play
The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.
Rohan U
Android user
I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.
Xander S
iOS user
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user
The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.
Rohan U
Android user
I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.
Xander S
iOS user
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user