2.1.2 Flashcards
what is external finance
capital raised from outside of the business
examples of sources of finance
- banks
- peer to peer funding (p2p)
- business angels
- crowdfunding
- other business
examples of methods of finance
-loans
-share capital
-venture capital
-overdrafts
-leasing
-trade credit
-grants
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3 advantages of loans
- quick and easy to measure
- improved cashflow
- fixed interest rates allow firms to budget
3 disadvantages of loans
- more expensive than other forms of finance
- can be charged a penalty for early payment
- a firm normally provides security known as collateral
3 disadvantages of loans
- more expensive
- can be charged a penalty for early payment
- collateral
3 advantages of share capital
- no interest repayments
- possible to raise large amounts of finance
- only need to pay dividends if profits being made and the amount of dividents is not fixed.
3 disadvantages of share capital
- loss of ownership as shareholders are part owner
- loss of control over plc whith a threat of takeovers
- comlex and costly to issue shares,especially for a plc
what is venture capital
investment from an established business into another business in return for a percentage equity in the business
3 advantages of venture capital
- expertise to help the business
- potential large sums of money for investment
- makes it easier to attract other sources of finance
3 disadvantages of venture capital
- a long and complex process
- partial loss of ownership
- Risk of conflict or perceived interference
3 advantages of overdraft
- only pay for the money borrowed
- quick and easy to arrange
- no charges for paying off the overdraft
3 disadvantages of overdraft
- the bank can call it in at anytime
- only available from a current bank account
- banks may secure the overdraft against the business assets
what is leasing
leasing allows a business to benefit from the use of an asset without owning it or buying it outright
what is trade credit
paying suppliers a period of time after the goods or services have been recieved
what is grants
grants are fixed amounts of capital provided to business by the government or other organisations to fund specific projects
