2.1 raising finance Flashcards
which sources of finance are long term?
-share capital
-retained profit
-venture capitalists
-bank loans
which sources of finance are medium term?
-bank loan
-grants
-leasing
which sources of finance are short term?
-bank overdraft
-trade credit
-bank loans (short term)
key considerations in choosing the right sources of finance:
-how much is needed?
-when is it needed?
-what is it needed for?
-what is the cost of the finance?
which sources of finance are internal?
-retained profit
-sale of assets
-owner’s capital
-friends and family
which sources of finance are external?
-bank overdrafts
-trade credit
-grants
-leasing
-bank loans
-venture capital
-share capital
-crowdfunding
-debentures
-peer to peer lending
what is retained profit?
business’s income that is kept within its accounts for later use
advantages of retained profit
-no interest → cheap source
-very flexible
-do not dilute the ownership of the business
disadvantages of retained profit
-danger of hoarding cash
-shareholders may wish to receive it in the form of a dividend
what is sale of assets?
(+ examples)
a business sells what it owns (assets) that it doesn’t need anymore
eg: spare land, surplus equipment
advantages of sale of assets
-money from valuable unwanted assets can be invested in other areas of the business
-can be a quick, one off boost to finance
disadvantages of sale of assets
-not all businesses have spare assets
-the amount of money made will depend on the value of the item
-the business loses the benefit of the asset
what is owner’s capital?
the investment that business owners make in their company
advantages of owners capital
-no interest
-doesn’t dilute ownership
-quick
-flexible & can be added when needed
disadvantages of owner’s capital
owners could lose their personal investment
what is finance from friends and family?
finance that family and friends have given to a business owner
advantages of finance from friends and family
-may not have to pay interest
-may be free
disadvantages of finance from friends and family
-the amount of may not be sufficient
-can strain relationships
what are the main sources for a start up business?
-owner’s capital
-friends & family
-bank loan
-business angels
-grants
why are personal sources important to a start up business?
-they are cheap
-the entrepreneur keeps more control over the business
-the more the founder puts in, the more others will invest (added confidence)
what are bank loans?
a sum of money borrowed from a bank
what period is a loan provided over?
a fixed period
what can the rate of interest be on a bank loan?
fixed or variable
how do repayments happen with business loans?
the timings and amounts of repayments are set between the lender and borrower