2.1.2 External Finance π¦ Flashcards
What are the 7 methods of finance ?
Loans
Trade credit
Venture capital
Share capital
Grants
Leasing
Overdraft
What are the positives and the negative of loans ?
Positives- long term
Have specific plans for businesses
Do not want a stake in your business
Advice
Negatives- intrest
- may lead to bad credit score if unpaid
Hard to attain
Not guaranteed
What is shared capital and what are the positives and negative ?
Sell shares of business in return for capital
Positives - no interest
Negatives -dilute of ownership
Risk of hostile takeover
If a plc your performance is visible to competitors
More dividends to pay
What is venture capital and what are the pros and cons ?
You pitch your idea to other entrepreneurs and they offer you money for return for a Share of your business
Pros - get knowledge
Offers large amount of capital
Negatives - dilute ownership
Difficult to obtain
What are overdrafts and what are the positives and negatives ?
Your overdraw a small account form your account
Pros - flexible
Helps free up cash flow
Negatives - short term
High interest
Small amount only
Not enough to cover costs - lead to uncertainty
What is leasing ? Pros and cons
When you pay to borrow an asset.
Pros - no large sums of money needed for use
Maintenance cost responsibility of
owner
Assets remain property of the business
Cons - long periods of leasing are expensive
Loans cannot be secure
What is trade credit ? Positives and negatives ?
But now pay later
Positives - frees up cash flow
Still have access to suppliers - can still trade
No interest
Negatives - fail to pay- loss of good will and bad rep
Only short term
Lose best supplier
What are Grants ? Positives and negative ?
When the government or organisation give you money
Positives- does not have to be repaid
Negatives- only available to small business
Hard to obtain
Filling applications for grants are time consuming
What are the 6 sources of finance
Friendsa and family
Peer to peer funding
Business angels
Banks
crowd funding
Other businesses
What are the advantages and negatives of using family and friends as a source of finance
Interest may be low or Zero if gifted
May not want a stake
Not fixed in terms or conditions
Negatives - if fail to pay back may lose friendships or relations
Limited
What are the positives or negatives of a bank as a source ?
May offer advisory advice
No Interest In your business so donβt worry about ownership
Negatives- need business plan
Interest
Secure loans on assets - bay lifts
What is peer to peer funding as a source ?
People lend you money ( not related)
Positives- no previous relations needed between lender or borrower
Cheaper as all online transactions take place online - convenient
Can have financial cover
Negatives- loans are insecure no protection for lender if borrower defaults
Interest
What are business angels ? Positives and negatives ?
Individuals that may invest 10000 to 100000 pounds for exchange for a stake in the business
Positives - no interest
Expertise with experience
Negatives - hard to find angel with similar outlook of the businesses future - lead to disagreement
Have to share profit
What is crowd funding ? Positives or negatives ?
Lots of people invest small amounts of money into your business
Advantages- no interest
No relations needed
All online convenient
Negatives - if you donβt get amount by deadline you lose everything
Very competitive
What are other businesses and a source of finance ?
Joint ventures - expertise
low interest
Negative - may buy shares
Risk of hostile takeover
Dilute ownership
Take a while to start up - not for immediate aid
