2.12 Finance for Growth

In order to finance growth, a business may use either internal or external finance.

Internal finance includes using retained profit (no interest to pay, but there is none in the first year and once it’s gone, it’s gone) and sale of assets (selling something the business owns – no interest to pay, but it means you can no longer use that asset and it might make you look weak to the competition or investors).

External finance includes loans (have to pay interest which increases fixed costs) and issuing shares (no interest to pay but might have to pay dividends).

A typical exam question on this might be:

” Explain the main benefit of a business using retained profit to expand rather than any of the other methods of raising finance” (3)

In your answer, think about: no interest to pay, lower fixed costs, impact on profit, speed of accessing the funds. Use connectives to link your strands.