2.1.2 external finance Flashcards
what is external finance
money created and supplied from external stakeholders outside the business
what are some sources of external finance
family, banks. business angels, government, other businesses, crowd-funding
what are some methods of external finance
loans, grants, share capital, venture capital, overdraft, trade credit
what is a business angel
an independent invididual who invest money into a business in return for shares and equity finance over a certain period of time
what is a grant
sum of money given to a business, usually by the government
what is venture capital
large investors provide money to a smaller business who are believed to have long term growth potential through a risky investment
what is trade credit
suppliers give a business an extended amount of time to repay, allowing them to sell products and raise the money needed
what is an overdraft
a short term lending of a small amount of money by a bank allowing you to go below £0
what is a disadvantage of a loan
you have to pay interest on top of the money you borrowed, you may not be eligible for a loan
what is a disadvantage of share capital
you lose partial control of the business, it can take a long time to find potential investors
what is a disadvantage of venture capital
dilution of ownership within the business as they can have a say/influence over business decisions
what is a disadvantage of overdrafts
their is interest
what is a disadvantage of trade credit
a business will need to have a good relationship with the suppliers in order for the deal to be agreed, if not repayed in time then the business risks losing their supplier
what is an advantage of a loan
you can gain huge sums of money in a short amount of time
what is an advantage of share capital
you do not need to repay investors, their is not much risk involved
