1.0. Available Sources of Funding to Hospitality Industries
Hospitality industry in UK has got problems from securing funds through banks which is supposed to be reliable source of business funding. This fact has made it necessary to look beyond banks to assists with the growth of the business. HOSPACE 2013.
Ben McClure, 2015 says “it is necessary that hospitality industry considers only financial funding that will not lead the business into future problems”. As if the industry does not utilize the money it borrows judiciously, it might affect its growth prospects.
The actual funding sources for UK hospitality industries are hereby critically looked into; ...view middle of the document...
However, the amount which can be raised by way of retained earnings will be limited to some extent and there is high opportunity cost. Dinayak Shenoy, 2014.
The external sources are through banks inform of a loan, overdraft and credit cards; lease, crowd funding, trade credits, hire purchase, government grants/other schemes, business angels, factoring and invoice discounting, and venture capital.
Before having access to any of the three facilities through bank funding, there must be an account which must be already opened at the bank to be approached. It may be either personal or a business account.
A .Loan is any amount that can be approved in line with the amount in the account and based on the credit history. The bank will work out the amount that can be paid back within a certain set period of time. It is also approved with a security and agreed payment on installment and with interest.
B. Credit cards is granted based on a clean record of an account to run the business or for personal use. The approved amount is put on the card to be spent on expenses and it is limited amount that can never be exceeded. It can be transferred to other account without extra charge. There is a set down repayment period which if not met leads to an interest charge.
C. Overdraft is a limited amount which is approved to be spent over a physical available amount in an operating current account. It comes with a high interests but it mostly serves as a short-term expenditure. Keith Timimi, 2010. Overdraft is a facility that can be cancelled at any time but there is a charge if its limit is exceeded.
Luke Nicholls, 2013 confirms that “with recent figures from the Bank of England showing that lending to hospitality businesses is falling, small business loan provider has seen a ‘dramatic rise’ in enquiries from restaurants and bars”.
A lease is a sort of indirect funding by which a property is hired instead of purchasing (as the amount to purchase such asset may not be afforded) to run a business whereby payment is made on a regular amount at an arranged interval period of time (monthly, 6 monthly or annually) on a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of the asset. Therefore, a lease agreement is a contract between two parties, the lessor and the lessee. The lessor is the legal owner of the asset, the lessee obtains the right to use the asset in return for rental payments. The contract can however be terminated by either of the parties at any time even sooner than its end date It can be for a fixed period of time (called the term of the lease). Stickney and Weil 2007.
Crowdfunding can be a loan or a capital that is received from people who show interest to contribute to the funding of a business on relaying the proposal or idea of the business to them. According to Nicola Horlick, 2013 "It's relatively high risk but on the other hand you're being compensated by getting a much higher return on your money."...