2 - External Sources Of Finance Flashcards
How are “external” sources of finance raised?
From a third-party
What can external sources of finance fund for a business?
Long-term investments
Why might external sources of finance be more costly?
Interest may be charged from loans
When isn’t interest charged from an external source?
If the business uses retained savings
What does a business sell when selling “share capital”? Who to?
Shares of the business
People or businesses
Why do businesses give away a percentage of their share capital?
For finance
What TV show involves share capital?
Dragon’s Den, BBC
Who do public limited companies create and sell their shares to?
Investors on the stock market
Who might private limited companies share their shares to?
Private equity companies
What are “bank loans and mortgages” important for?
Businesses
Who does a business borrow money from? What is paid along with the borrowed money?
A bank
Interest
Why might it be harder for newer businesses to get bank loans?
Banks see them as a riskier investment
What is meant by “trade credit”?
Where businesses pay their suppliers at a later date
What does trade credit involve?
Buying something and paying it at a later date
What type of businesses often use trade credit?
Supermarkets
How might supermarkets use trade credit?
They have food delivered, but pay the supplier later
What is meant by a “hire purchase”?
When a business buys something and pays for it in installments
What is an example of a famous hire purchase?
When PSG bought Kylian Mbappe from Monaco
What does a hire purchase allow a business to do? What product might be hired?
Use expensive products without paying for them directly
Machinery
Why might start-up businesses use “loans from family and friends”?
The owner might not have enough savings for the investment
Why might an owner give up equity to their donators?
So they don’t have to pay interest on a loan
What is meant by a “government grant”?
Where a government give money to a business for research purposes
What is an example of a set of government grants given out to countries in the EU?
Horizon 2020
What is meant by “debt factoring”?
A business selling their debts to a third-party
Who immediately gains cash from debt factoring?
The business selling the debt
What will the debt from debt factoring be sold for in terms of its value?
It will be sold for less than its original value
What will the third-party who collect the debt arrange and organise? What will they ensure?
The invoices
The debt money is collected
What will the third-party from debt factoring retain to cover the cost of the debt collection service?
A fee
What is meant by “venture capital”?
Where an investor provides a business with a loan or share capital
What is meant to be ensured from venture capitalism?
Business growth
What might venture capitalists ask for when investing?
Some control of the business
How might venture capitalists gain some control of the business they are investing in?
Shares
What might venture capitalists play a role in within the business?
As non-executive directors
What is meant by an “overdraft”?
Where a business can borrow a limited amount of money from a bank
Why are overdrafts flexible?
Businesses can borrow how much they like as long as they stay within the agreed limit
How do businesses possibly pay for flexible overdrafts?
Higher interest rates
What is meant by a “business angel”?
An affluent individual who provides funding in exchange for ownership
What do businesses obtain through business angels?
Finance
What is transferred through business angels and owners?
Ownership
What does transferred ownership to business angels mean for owners?
Owners have less control over their business
What do businesses not have to pay from business angel funding?
Interest rates
What is meant by “crowdfunding”?
Raising finance by allowing large numbers of people to donate
What are two websites businesses can obtain funding through crowdfunding?
Seedrs
Kickstarter
What do business owners retain through crowdfunding?
Ownership
What does crowdfunding mean for an owner’s existing ownership?
No shares of the business are sold
What is an issue with crowdfunding?
It can take a long time
What is crowdfunding unsuitable for?
Businesses who need quick funds
What is GoFundMe?
A crowdfunding platform that allows businesses to share information on a product
What does GoFundMe rely on?
People deciding to donate to a business
Why do people make donations in crowdfunding?
In return for a free trial or pre-release access of a product
