Essay
unit 2 p4
- Module
- Unit 2 - Business Resources
- Institution
- PEARSON (PEARSON)
Essay of 3 pages for the course Unit 2 - Business Resources at PEARSON
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Unit 2 p4In this report I will be describing the different types of internal finance that is available to
tesco.
With the advantages and disadvantages
Internal sources of finance are savings, equity release
Internal sources
Owners savings
This is money that has been saved by the owner and is used help support the business. In
more common instances the owner will invest their savings at the begining to help get the
business up and running, because for some the cost of taking out a loan is too high in
interest or the bank is unwilling to lend the money.
An advantage to using personal savings is that there are no interest rates, also you don’t
owe anyone any money. A disadvantage is that you lose the money that you have worked
for.
Tesco will use their personal savings from their profits and will use it to reinvest back into the
business so that it will grow and produce more profit.
Capital from profits
This is money that comes from the sale of premium assets. Some profits will be used to be
put back into the company.
An advantage to using capital from profits is that it’s not your personal money that you are
losing out on. A disadvantage of capital from profits is that a smaller business with little
profits would struggle to use the money to grow and live off.
Tesco will use money from their profits to buy assets which they can then use to get a bank
loan to expand on the size of thier business.
External sources
The external sources of finance are other ways for companies to spend
Bank overdraft
This is money that can be taken out by the account owner and go into negative figures. It is
a short term finance solution.
An advantage to using a bank overdraft is that if a company has certain bills to pay and they
won’t get paid for a few days then the overdraft can be used to pay those bills. A
disadvantage of a bank overdraft is that it has very high interest rates of usually 17%.
Tesco wouldn’t have to use a bank overdraft because of how large of a company they are.
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