2.1 - raising finance Flashcards
what do we use finance for?
to fund the assets required for the business
what is capital expenditure?
money for assets used over, and over again
what is revenue expenditure?
money for good and services that get consumed
internal finance that comes from personal savings or a redundancy payment
owners capital
what is profit that gets put back into the business?
retained profit
offloading unwanted assets for capital
sale of assets
what are 3/4 advantages of using internal finance?
- instant capital
- no need to involve any third parties
- cheap
- not subject to credit checks
what are 4/5 disadvantages of internal finance?
- limited amount of it
- non tax deductible
- inflexible compared to external finance
- high opportunity cost
- no inflation benefits
where does internal finance opportunity cost come from?
money could have been used for other investments that would have made more return
what is a method of finance using someone you’re related to or friends with?
family and friends
what is the main source of finance involving a bank?
a loan
what is a source of finance that involves withdrawing money exceeding your bank balance?
an overdraft
what is the source of finance that involves people lending money without the bank?
p2p lending
what type of loan is p2p lending?
an unsecured loan
what type of lending is used on the TV show shark tank?
business angels
when do business angels typically come in?
at the start of the business
what is venture capital?
similar to business angels, come in with an investment funding growth towards a business in exchange for a percentage equity or share
how are venture capitalists different from business angels?
they usually come in once the business has already been deemed “successful” - they fund further growth
what is the most common method of finance?
bank loans
what is a method of finance for housing?
mortgages
what is a common characteristic of a mortgage?
very long usually >25 years
what is a method of finance with a fixed rate of return?
debentures
are debentures secured?
no they are not
