Subjects

Careers

Open the App

Subjects

Advantages and Disadvantages of Retained Profit and Loans in Business

Open

17

0

user profile picture

Lauren

29/07/2022

Business

Higher business

Advantages and Disadvantages of Retained Profit and Loans in Business

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, share issues, and venture capital. Each financing method is explained with its key features and implications for businesses.

...

29/07/2022

705

Can't find what you're looking for? Explore other subjects.

Knowunity is the #1 education app in five European countries

Knowunity has been named a featured story on Apple and has regularly topped the app store charts in the education category in Germany, Italy, Poland, Switzerland, and the United Kingdom. Join Knowunity today and help millions of students around the world.

Ranked #1 Education App

Download in

Google Play

Download in

App Store

Knowunity is the #1 education app in five European countries

4.9+

Average app rating

21 M

Pupils love Knowunity

#1

In education app charts in 17 countries

950 K+

Students have uploaded notes

Still not convinced? See what other students are saying...

iOS User

I love this app so much, I also use it daily. I recommend Knowunity to everyone!!! I went from a D to an A with it :D

Philip, iOS User

The app is very simple and well designed. So far I have always found everything I was looking for :D

Lena, iOS user

I love this app ❤️ I actually use it every time I study.

 

Business

705

29 Jul 2022

1 page

Advantages and Disadvantages of Retained Profit and Loans in Business

user profile picture

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
Source
Retained profit is profit that has
Retained Profit been made by the business in
previous years that is then
reinve

Sign up to see the contentIt's free!

Access to all documents

Improve your grades

Join milions of students

By signing up you accept Terms of Service and Privacy Policy

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.

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