2.1.2 External finance

Question 1

What are the external sources of finance?

Answer 1

• Family and friends.
• Peer to peer lending: this allows people to borrow money without going through a bank.
• Banks.
• Crowdfunding: this is where people can invest in projects online.
• Business angels: someone who invests in a start up company

Question 2

What is leasing?

Answer 2

Where a business uses machinery and property etc for regular payments but never owns them.

Question 3

What are the pros and cons of external finance?

Answer 3

Pros:
- Expertise and guidance will be useful for new businesses.
- Useful if a business doesn’t have retained profits.

Cons:
- Higher costs due to added interest.
- Potential loss of control and decision making.