A owner of a company has decided that, in order to improve profitability a machine will be purchased that will manufacture goods for resale and reduce the cost of the purchases of stock. The cost of the machine will be £ 100,000 and finance will be required. The owner has asked you lot for advice as to different method of funding that are available and the restrictions that the finance providers will probably require in each case.
THIS IS MY ANSWER can anyone give a better one:
In sole proprietorship, the sources of finance are very limited. A sole proprietor cannot issue the share of his company in the market, in order to collect some funds. The owner here has very limited options.
The owner can raise funds by borrowing money from his friends or relatives. Or he can apply for a loan from a bank. But for this he will have to mortgage his personal property. And this property may be taken away by the bank if the owner fails to repay the loan on time. CAN U HELP ME OUT PLEASE?
2007-07-17 22:49:12 · 1 answers · asked by woodenorwire2 1 in Business & Finance ➔ Other - Business & Finance
The owner can also obtain lease financing, e.g. a capital lease which is effectively a purchase by instalments. The collateral to the finance co. is the machine. He can arrange for the lease obligation to be fulfilled in, say, 5 yrs, i.e. over 60 instalments. Every month when he pays an instalment, he has to break the instalment into 2 parts for his bookkeeping - the repayment of principal and the interest element. There has to be an interest element, cos who will allow you to take 5 yrs to pay up without charging you interest? Some countries call this a hire-purchase arrangement.
2007-07-18 02:50:51 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋