Identify Short, Medium, And Long Term Sources Of Finance Available To A Limited Company And Discuss Advantages And Limitations Of Each Method?


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Rebekah Coulson Profile
Rebekah Coulson answered
Just like with individuals, limited companies will be able to consider an array of financial options from creditors. This can aid business expansion, and also ensure that operations can continue during challenging economic conditions. Long-term sources of finance are generally intended for repayment over 12 months, and this can be perceived as a limitation in itself, especially if the entrepreneur would prefer an early exit strategy instead of being tied town to an outstanding financial obligation for years to come.

Shares are also a long-term source of finance, but they can be slightly more flexible - especially as stakeholders can be bought out if an exit strategy is required.

Short-term finance is also possible with some banks for limited companies, but the limitation of such an option at the moment can be found in the availability of credit, which isn’t very good. After lending was too extensive during the sub-prime mortgage crisis, resulting in the unprecedented accumulation of toxic assets, businesses are now far more reluctant to part with their funds unless there is solid proof of a company’s stability. Therefore, for small companies who are looking to get a monetary boost, there are countless limitations to face at present.

Medium-term solutions won’t always be limiting and, in the UK, Lottery funding isn’t just finance - put a permanent cash injection into some social enterprises and other not-for-profits. Any profits which are developed thanks to this funding can be reinvested back into the business instead of paid back to Camelot, and this brings prosperity and continued growth for the benefit of communities. As you can see, this isn’t limiting in the slightest for organisations that want to do good for others.

It could be argued that limitations and advantages of finance for limited companies, from short-term to long-term, will depend on the market the business is based in, and the options available to them.

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