2.1.2 External finance Flashcards
pro family and friends
no need for security
loans offered at lower rates
con family and friends
- may cause tension and problems
- may demand money back in short notice
pro banks
- retain control
- easier payment plans
con’s banks
- expensive
- hard to achieve by new business
- needs business plan
define peer to peer funding
matches businesses with investors
pro’s peer to peer funding
- access within a week
- apply online
con’s peer to peer funding
if not enough people are interested may not acquire enough
define business angels
offers to lend personal disposable finance in return for shares
pro business angels
- investors knowledge and contacts
- management skills
- no repayments or interests
con’s business angels
- not suitable below 10k or about 500k
- give up shares
define crowdfunding
large number of people fund a project over the internet
3 ways to crowdfund
- lend - donate - invest
pro’s crowdfunding
- no fees
- generate funds + promotes business
con crowdfunding
must showcase idea using videos
define share capital
finance raised from sales of shares, form of equity capital
shareholders rewarded from dividends
pro’s share capital
- only pay dividends if profit is made
- raises large amounts
- no interest
con’s share capital
- loss of ownership
- potential risk of loss
- complex + costly process
define venture capital
investments from an established business into another business in return for percentage equity
pro venture capital
- expense
- large sums of money
- easy
con venture capital
- loss of ownership
- long and complex
- initially costly
define overdraft
overspending on a current account
pro overdraft
- quick and easy
- no charges when paid off
con overdraft
- bank can call it in any time
- high interest rates
define leasing
never own the equipment but pay for it monthly
pro leasing
- lower monthly costs
- maintain the equipment
con leasing
- over a fixed term
define trade credit
trade credit allows a business to purchase stock and pay later
pro trade credit
- businesses sell good before stock needs to be paid
- no interest
- regular business may build relationships
con trade credit
- not all stock is available
- if not paid in time businesses may be refused in the future
define grants
govt provides financial help to a business
pro grants
- not have to pay back
- no loss of control
con’s grants
- competition
- complex and time consuming
