What external finance options are available for companies?

Companies can access external finance through options such as bank loans, issuing shares, trade credit, leasing, and government grants.

Bank loans are a common form of external finance for companies. They involve borrowing a specific amount of money from a bank and agreeing to pay it back, with interest, over a set period. The interest rate and repayment terms can vary depending on the bank and the company's credit rating. This option provides immediate funds and can be used for a variety of purposes, such as purchasing equipment or expanding operations.

Issuing shares is another way companies can raise finance. This involves selling a portion of the company's ownership to investors in exchange for capital. The investors, or shareholders, then have a claim on the company's future profits. This method can raise substantial funds, especially for larger companies, but it also means giving up some control of the company.

Trade credit is a form of short-term finance where suppliers allow companies to purchase goods or services and pay for them at a later date. This can improve cash flow as it allows companies to receive goods immediately but pay for them later. However, it's important to manage trade credit effectively to avoid damaging relationships with suppliers.

Leasing is another option, particularly for companies that need expensive equipment or machinery. Instead of purchasing these assets outright, companies can lease them, paying a regular fee for their use. This can be more cost-effective and allows companies to access the latest equipment without a large upfront cost.

Finally, government grants are a form of external finance that doesn't need to be repaid. These are often available for specific purposes, such as research and development or hiring new staff. However, they can be competitive and may come with certain conditions or requirements.