Financing a Business expansion

Enterprise and Venture Capital: A Business Builder's and Investor's Handbook

1.  Reserves

Are profits, which are ploughed back into the business to create growth? This form of finance is suitable for organic growth as the pace of the expansion can be matched to the funds available. Are used to finance the purchase of new buildings or equipment. They have no direct cost for a company but take along time to build up.

2.  Share Capital

Referred to as the equity of the company. This is money imputed into the firm by the individual shareholders. As the firm makes money, the shareholders receive a % dividend on their investment. However if the firm’s profits are low, the individual dividend will be low.

3.  Loan Capital

Is the long-term finance provided by financial institutions? Long-term loans are called debentures. When applying for a loan to finance expansion, a company has to supply the bank with accounts showing the present state of the business. Also needed are cash flow forecasts, costings, and research.

Information needed before any loan is granted includes:

Creditworthiness of borrower
Purpose of loan
Capacity to repay
Amount of loan
Security offered
Duration of loan