Factors Affecting the Sources of Finance
What factors influence a business's choice of finance sources?
Factors influencing a business's choice of finance sources include the cost of capital, business size, risk appetite, creditworthiness, availability of collateral, industry norms, and the purpose for which the funds are needed.
How does the cost of finance impact the selection of finance sources?
The cost of finance, including interest rates, fees, and associated costs, impacts the selection of finance sources. Businesses typically compare the cost of different finance options and evaluate the overall cost of capital to determine the most cost-effective and suitable source of finance. Lower-cost financing options are generally preferred, but businesses must also consider factors such as risk, repayment terms, flexibility, and the impact on ownership and control.