1.3.4 sources of business finance Flashcards
what are the 2 short term sources of finance
overdraft, trade credit
what are the 6 long term sources of finance
personal savings, venture capital, share capital, loans, retained profits, crowdfunding
what is overdraft
an external source of finance provided by banks and building societies
what are 2 advantages and disadvantages on overdraft
advantages: only pay for the money borrowed, no charges for paying off the overdraft
disadvantages: that bank can call it in at any time, can’t be used for long-term projects
what is trade credit
paying suppliers a period of time after the goods or services have been recived
what is one advantage and disadvantage on trade credit
advantage: only pay for the goods or services purchased
disadvantage: the business may lose out of discounts offered for immediate or quick payment increasing costs
what is personal savings
when entrepreneur invests their own money in a business
what are 2 advantages and disavantages of personal savings
advantages: don’t have to repay, no interest charges
disadvantages: may only be limited abouts of money available, threat to personal finances and family
what is venture capital
investmant from an establised business into another business in return for a percentage equity in the business
what are 2 advantages and disavantages of venture capital
advantages: makes it easier to attract other sources of finance, potential of large sums of money for investment
disadvantages: a long process, partial loss of ownership
what is share capital
the amount of money the owners of a company have invested in the business as represented by common and preferred shares.
what are 2 advantages and disavantages of share capital
advantages: no intrest repayments, possible to raise large amounts of finance
disadvantages: loss of ownership as shareholders are part owners, complex and costly process of issuing shares
what is a loan
a set amount of money provided for a specific purpose, to be repaid with interest, over a set period of time
what are 2 advantages and disavantages of loans
advantages: quick and easy to secure, fixed interest rates allow firms to budget
disadvantages: interest must be paid regardless of financial performance, can be charged a penalty for early payment
what is retained profit
this is kept within a business from profit for the year to help finance future activities
