5.2.3—Finance source factors

Choose a finance source by comparing amount, duration, cost, security, repayment, speed, risk, flexibility and impact on ownership. The need and the business context come first.

Short-term working capital should not usually be funded with an inflexible long-term commitment, while a long-lived asset should not depend on a source that must be repaid immediately.

Trade credit may bridge inventory purchases, whereas a term loan or lease may match equipment life; a start-up with uncertain cash flow needs a different mix from a mature firm.

The lowest interest rate is not necessarily the lowest total cost once fees, security, risk and control are included.