2.1.2 - External Finance

Question 1

Family and Friends - What is it / ADV and DIS

Answer 1

• Provide extra start-up capital
  ADV - Flexible and little to no interest
  DIS - May only be small and could strain relationships

Question 2

Banks - What is it / ADV and DIS

Answer 2

• Can offer loans, overdrafts and mortgages
  ADV - Short and Long term, clear terms and can offer free advice
  DIS - Hard to be approved, interest

Question 3

Peer-to-Peer Funding - What is it / ADV and DIS

Answer 3

• Online and allows individuals to lend money by indicating amount and interest
  ADV - Lower rate of interest than banks and good if refused bank
  DIS - May not get required amount ,

Question 4

Crowd Funding - What is it / ADV and DIS

Answer 4

• Raising money from people via the internet
• Details made public to entice people to donate and also regards are sometimes offered
  ADV - Raises awareness of brand/product
  DIS - Risk of ideas being copied and also may not make enough capital needed

Question 5

Business Angels (Venture Capital )- What is it / ADV and DIS

Answer 5

Wealthy individuals that invest money into potentially successful businesses
ADV - Gives knowledge and potential contacts
DIS - Can be time consuming and also can lose some control in the business

Question 6

What is share capital?

Answer 6

• Selling a piece of your business in return for capital

Question 7

3 Advantages of Share Capital

Answer 7

• Potential to raise lots of capital to expand
• No interest
• Doesn’t have to be paid back

Question 8

3 Disadvantages of Share Capital

Answer 8

• Lose decision making power
• Shareholders may take over business
• Have to share profits through dividends

Question 9

What are short/medium term finances?

Answer 9

• Overdrafts
• Grants
• Trade Credit
• Leasing

Question 10

Overdrafts - What is it / ADV and DIS

Answer 10

• Short/Medium Term
• When the bank lets a business go into negative money
  ADV - Easy to arrange so helps cash flow
  DIS - High interest rates

Question 11

Leasing - What is it / ADV and DIS

Answer 11

• Short/Medium Term
• Paying monthly sums of money for an asset over a set period of time
  ADV - No large sum at once
  DIS - Can be more costly in long term

Question 12

Grants - What is it / ADV and DIS

Answer 12

• Fixed sum of money given by Government
  ADV - No repayment
  DIS - Can be time consuming and may not get a grant

Question 13

Trade Credit - What is it / ADV and DIS

Answer 13

• When a business buys a good and has to pay within an agreed time period
  ADV - Can help cash flow
  DIS - May miss out on discounts and failure to meet time could cause problems

Question 14

Types of Long-Term finance

Answer 14

• Loans
• Share Capital
• Venture Capital

Question 15

Loans - What is it / ADV and DIS

Answer 15

• Where a fixed amount is borrowed and paid back over a period of time with interest
• Good for start up and to pay for assets
  ADV - Can get the needed amount, loan provider wont own any of the business
  DIS - Difficult to arrange, interest