2.1.2 external finance Flashcards
friends and family
private limited companies can raise finance by selling shares to friends and family
advantage of friends and family
owner may still keep control of the business
may be better able to trust their business investors
disadvantage of friends and family
may cause tension and problems if the finance is not repaid or the business doesnt flourish
banks
banks may loan to a business to start up or growth.
banks may provide a business with an overdraft to help when they have cash flow problems.
peer to peer funding
unsecured loans without going through a bank.
e.g. student loans, payday loans, debt factoring, lease agreements
business angels
angel investor makes use of their personal disposable finance.
makes their own decisions about making the investment.
investor takes shares in the business in return for providing equity finance.
provide a business with money to grow, experience and knowledge.
crowd funding
a large number of people fund a project over the internet making small investments each.
3 ways to fund e.g. donate, lend, invest
disadvantages of banks
banks may not lend to business when they first start up as there is no history of them making money.
loans are quick to set up.
loans are affected by interest rates
overdraft
organised by the bank which is short term lending of smaller amounts of money.
high charges and interest rates.
expensive source of finance
ordinary share capital
public limited companies can raise more finance to expand by having an ordinary share issue.
external long term method of finance
venture capital
venture capitalists will invest large sums of money in a business in return for shares in the company.
invest at least 50,000 in a small region business.
lease
as a business grows it may decide that it needs some more vehicles or equipment.
may decide to lease so equipment can be updated regularly.
never own the equipment but will get the option to change
trade credit
a business trades with another meaning they need to buy goods with trade credit.
seller gives the buyer 30, 60, 90 days to pay.
buyer has time to sell the goods in their own shop before they have to pay
government grants
provides financial help to businesses in some areas of the country.
dont usually have to be repaid.
owner keeps full control of their business
advantages of government grants
dont have to pay it back
dont have to pay interest
