9609 · 5.2.1
Business ownership and sources of finance — FAQ
Frequently asked questions for 9609 Business ownership and sources of finance. Direct answers first, then deeper explanation — then practise with marking.
Does 'limited liability' mean a company has limited access to finance?
This is a common misconception. 'Limited liability' means the owners' (shareholders') personal assets are protected if the company fails; they are only liable for the amount they invested. This protection for owners actually increases the business's access to finance, as it makes investment less risky and makes the company a more secure and formal proposition for lenders like banks.
Can a sole trader get any finance other than their own money?
Yes. While owner's capital is the primary internal source, sole traders can access external finance. Common sources include bank loans (often secured against personal assets like a house), overdrafts, trade credit from suppliers, and sometimes government grants. However, the scale of this finance is typically much smaller than that available to an incorporated company.
Is selling shares always a better way to raise finance than getting a bank loan?
Not necessarily. Selling shares (equity finance) means diluting ownership and control, and future profits must be shared with new shareholders via dividends. A bank loan (debt finance) must be repaid with interest, but ownership and control are fully retained. The 'better' option depends on the business's objectives, its attitude to risk and control, and the relative cost of each option.