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    External Sources of Finance Evaluate Question

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    External Sources of Finance Evaluate Question

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    External sources of finance evaluate question

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    External Sources of Finance Evaluate Question

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    Evaluate whether a bank loan or peer-to-peer funding would be the more suitable source of

    finance for Royal Oven’s expansion plans. ( 20 )

    Using a bank loan would be beneficial for Royal Oven because by doing so, they might receive advice
    and support from the bank. This may lead to the business making better-assessed decisions due to
    the expert opinion of the bank workers. Therefore, they will probably be able to meet the increase in
    demand they’re seeing recently as they will improve logistically. As a result, they will be able to
    continue growing their business in other areas of Tanzania.

    However, it might not be such a good idea because there is more paperwork involved, so they might
    not get access to the capital right away. This may lead to the business not being able to produce as
    many cakes and bread. Therefore, their sales will decrease, as will their rate of growth in market
    share. As a result, they might not be able to pay back the loan. Consequently, their credit score will
    decrease and they’re less likely to get bank loans in the future.

    On the other hand, peer-to-peer funding would be ideal because the interest rates are usually lower
    than those of bank loans or other external sources of finance. This will lead to the business to have
    less costs relatively. Therefore, they will break-even faster. As a result, they will dispose of more
    capital in the future to be able to invest in the business with no external investors and not having to
    pay interest at all while maintaining their reputation as a modern retail bakery.

    However, they may only be a limited amount of money they can raise as the ones investing are
    individuals not backed up by multinational hedge funds. This may lead to them not having enough
    capital to be able to expand their business further as they’re already a very successful company.
    Therefore, they will lose on potential sales as it’s very expensive to open a high-quality, nationally
    recognised bakery.

    Overall, I think a bank loan is most suitable to Royal Oven because by them being a big company,
    they will probably have no issue with paying a bit more interest as they already have a very big
    revenue. Also, it won’t be a problem because the advice they’ll receive from the bank will be very
    helpful to them when trying to expand their business across the country. However, it may depend on
    if they have taken any loans in the past because if they don’t have a good credit score, it may be
    easier for them to ask for peer-to-peer funding.

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