Financing Business Growth: Internal and External Sources of Capital

The video discusses how businesses can finance growth plans through internal and external methods. Internal methods include using retained profits and selling assets, while external methods involve loan and share capital. The video explores the pros and cons of each method, including the impact on ownership and control. It also covers the implications of becoming a public limited company and compares debt and equity financing.

What are the two primary methods businesses use to finance their growth?

• Debt and savings

• Loans and grants

• Equity and bonds

• Internal and external sources

Which internal financing method involves reinvesting past profits into the business?

• Asset liquidation

• Retained profits

• Debt financing

• Equity financing

What is a potential downside of using retained profits for financing?

• Limited by profit availability

• Increased liability

• High interest rates

• Dilution of ownership

What is a key characteristic of loan capital?

• No repayment required

• Dividend obligations

• Ownership dilution

• Interest payments

What is a risk associated with taking out a loan for business financing?

• Increased ownership control

• No need for collateral

• Loss of voting rights

• Financial burden from interest

How does share capital differ from loan capital?

• It requires regular interest payments

• It involves borrowing from banks

• It does not affect ownership structure

• It involves selling ownership stakes

What is a potential consequence of selling shares in a business?

• Higher interest rates

• Increased debt

• Loss of control

• Reduced profit margins

What is a public limited company (PLC)?

• A non-profit organization

• A company with publicly traded shares

• A privately owned business

• A company that only issues debt

What is a disadvantage of becoming a PLC?

• Pressure to meet shareholder expectations

• Reduced public scrutiny

• Limited access to capital

• Increased control over business decisions

What is a benefit of floating shares on the stock market?

• Complete control over business operations

• No need to report financial performance

• Immediate access to debt capital

• Increased business profile and capital