2.1.2 Flashcards
What is Debt Factoring?
When a business is owed cash by a trade receivable so they sell the debt for less to a third party organisation
2 Pros of Debt factoring
Quick method of finance
Improves cash flow of business
1 Con of Debt Factoring
Missing out on the difference between how much debt is worth and how much it is sold for
What is a Bank Loan.
When a business borrows a sum of money and pays it back with interest over an agreed period of time.
2 Pros of Bank Loans
No share of business is given up
Lower interest rates then overdraft
2 Cons of Bank loans
No flexibility of repayment
Assets may be at risk if not re paid
What is Crowd Funding?
Raising finance by seeking small contributions from a large number of people via the internet.
What are the 2 stages of crowdfunding ( How to start )
Creating a campaign on a crowdfunding platform and outlining the objective.
Set clear goals and give incentives to backers
2 Pros of Crowd funding
Built in marketing exposure and awareness
Access to funds without traditional routes of loans
3 Cons of crowd funding
Funding may not be reached
Idea could be copied
Huge competition to get backers
What are Business Angles?
Wealthy individuals who provide capital to early stage businesses in exchange for equity.
2 Pros of Business Angles
Early stage businesses may not be eligible for traditional sources of finance
Expertise and mentorship
What are New Share issues.
When a limited company issues new shares in exchanges for monetary payments.
2 Pros of New Share Issues
No interest
Huge volumes of stocks many be bought publicly
2 Cons of New Share Issues
Giving up share of business, looses control
Expected to pay dividends
What is venture capital
Capital invested in high risk businesses, where traditional finance methods will not apply
2 Pros of Venture capital
No repayment of finance
Expertise
1 Con of business
Given up share of business
What are overdrafts.
When a business withdraws more cash than a bank account holds.
3 Pros of Overdrafts
Very quick to organise
No loss of equity
Bespoke to business needs
1 Cons of Overdrafts
High interest rates
What is trade credit.
When you buy raw materials from supplier today but pay later.
3 Pros of Trade credit
Simple to arrange
Cheap forms of finance
No control given up
2 Cons of trade credit
Risks of relationship with supplier not being met
Large fine if pay late
