2.1.2 External Finance Flashcards
What is external finance?
Finance from sources outside the business
What are the advantages of using friends and family?
- cheap
-no interest
What are the disadvantages of using friends and family?
- could cause a loss of friendship
- could cause a family breakdown
What is a bank overdraft?
When a business can spend more in their bank then what is available
What are the advantages of a bank overdraft?
- flexible
- quick to arrange
What are the disadvantages of a bank overdraft?
- bank can call in the money at any time
- high interest rates
What is crowd funding?
Where a group of individuals come together to raise finance without the use of the bank
what are advantages of crowd funding?
- provide a large sum of capital
- avoids the use of a bank
- quick
what are disadvantages of crowd funding?
- may not raise desired amount
- may damage reputation
What is a loan?
money lent to a company which needs to be paid back, usually with interest, over a set period of time
what are the advantages of using a loan?
- large sum of money
- remain control
what are the disadvantages of using a loan?
- high interest rates
- less flexible
What is share capital?
Capital is raised throughout the sale of shares
what are advantages of share capital?
- large sum of money
- flexible
what are disadvantages of share capital?
- lose control
What is a venture capitalist?
providers of funds for small to medium businesses that may be considered to risky for other investors
what are the advantages of a venture capitalist?
- specialist investors
- quick access
- knowledge within industry
what are the disadvantages of a venture capitalist?
- loss of control
- limited flexibility
What is leasing ?
a contract to acquire the use of resources or equipment
what are advantages of leasing?
- no large sum of money needed to buy resources
- flexibility
what are disadvantages of leasing?
- no ownership
- can be expensive over a period of time
What is trade credit?
a type of short-term financing offered by suppliers or distributors that allows a business to purchase goods or services now and pay for them later
what are advantages of trade credit?
- easy access to items
- improved cash Flow management
what are disadvantages of trade credit?
- interest costs
- risk of supplier dependency
What is peer to peer lending?
where individuals lend to each other without prior knowledge of them
what are advantages of peer to peer lending?
- avoids the use of banks
what are disadvantages of peer to peer lending?
- cash may not be instant
