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business > 2.1.2 external finance > Flashcards

2.1.2 external finance Flashcards

1
Q

name 6 sources of finance

A
  • family and friends
  • banks
  • p2p funding
  • business angels
  • crowdfunding
  • other businesses
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2
Q

name 7 methods of finance

A
  • loans
  • share capital
  • venture capital
  • grants
  • leasing
  • overdrafts
  • trade credit
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3
Q

what is a source of finance

A

its where the finance is coming from

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4
Q

what is a method of finance

A

its how the finance is provided

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5
Q

what is family and friends

A

investment from people known to the entrepreneur

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6
Q

what is the advantage of family and friends

A
  • repayment terms and conditions may be flexible
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7
Q

what are the disadvantages of family and friends

A
  • amount may be limited

- may place pressure on relationships

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8
Q

what are banks

A

financial institutions that are licences to take deposits, pay interests, make loans and act as an intermediary in financial transactions, as well as provide other financial services to their customers.

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9
Q

What are the advantages of banks

A

+ they have specialists who can help advise you on topics such as methods of finance and business planning

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10
Q

Name disadvantages of banks

A
  • you have to pay interest in your loans
  • they don’t have your best interest as their best interest
  • if a high risk business plan then they will do lend you money
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11
Q

What is p2p funding

A

The practice of an individual lending to other individuals with whom there is no relationship or contact

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12
Q

What are the advantages of p2p funding

A

+ cuts out the use of intermediaries like banks
+lending is done online
+ interest is often lower than banks

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13
Q

What are the disadvantages of p2p funding

A
  • only aim is profit

- won’t help you much if the business is failing

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14
Q

What is business angels

A

Wealthy individuals who make personal investments into start up businesses in return for a share of the business

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15
Q

What are the advantages of business angels

A

+ offer support and expertise

+ some form groups to share research and make joint investments so are more likely to invest in risky businesses

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16
Q

What are the disadvantages of business angels

A
  • You have to demonstrate good understanding of business model for them to invest
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17
Q

What is crowdfunding

A

It’s raising finances from a large number of people who each invest small amounts of money

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18
Q

What is the advantages of crowdfunding

A

+ can use the internet to explain how much money is required so people are more likely to invest

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19
Q

What are the disadvantages of crowdfunding

A
  • Investor is only tied to promised contribution if the the total amount is made
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20
Q

What are other businesses

A

Businesses with a healthy cash balance who are looking to invest in other businesses

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21
Q

What are the advantages of other businesses

A

+ can help aid you in decision making in your business

22
Q

What is the disadvantage of other businesses

A
  • can sometimes lose a share of your business
23
Q

What is a loan

A

A set amount of money provided for a specific purpose, to be replayed with interest over a set amount of time

24
Q

What are the advantages of loans

A

+ quick and easy to secure
+ fixed interest rates allow firms to budget
+ improves cash flow
+ borrower retains ownership over business

25
Q

What are the disadvantages of loans

A
  • interest must be paid regardless of financial performance
  • a firm which is highly geared I.e. has a high proportion of capital raised through debt may be seen as high risk
  • a firm normally has to provide security known as collateral
  • often more expensive than other sources of finance
  • can be charged a penalty for early payment
26
Q

What is share capital

A

Finance raised from the sale of shares

27
Q

What are the advantages of share capital

A

+ only need to pay dividends is a profit is being made and the amount of dividend is not fixed
+ possible to raise large amounts of finance
+ no interest repayments

28
Q

What are the disadvantages of share capital

A
  • loss of ownership as shareholders are part owners
  • potential risk of loss of control for a PCL with a threat of hostile takeovers
  • complex and costly process of issuing shares, especially for a PLC
29
Q

What is venture capital

A

Investment from an established business into another business in return for a percentage equity in the business

30
Q

What are the advantages of venture capital

A

+ potential for large sums of money in investment
+ expertise to help the business
+ makes it easier to attract other sources of finance
+ provides the required capital for expansion

31
Q

What are the disadvantages of venture capital

A
  • a long and complex process
  • expert financial projections are likely to be required
  • initially expensive for the firm
  • partial loss of ownership
  • risk of conflict or perceived interference
32
Q

What is an overdraft

A

It’s the facility to overspend in a current account up to an agreed sum

33
Q

What are the advantages of overdrafts

A

+ only borrowing when required allowing flexibility
+ only pay for money borrowed ( plus interest)
+ quick and easy to arrange
+ no charges for paying of overdraft

34
Q

What are the disadvantages of overdrafts

A
  • the bank can call it in at any time
  • only available from a current bank account
  • interest payments tend to be variable making it more difficult to budget
35
Q

What is leasing

A

Allows a business to benefit from the use of an asset without owning it or buying it outright

36
Q

What are the advantages of leasing

A

+ avoids the need to finance

+ lease company is responsible for repairing

37
Q

What is the disadvantages of leasing

A
  • may be more costly in the long run
38
Q

What is trade credit

A

Paying suppliers a period of time after the goods or services have been received

39
Q

What are the advantages of trade credit

A

+ no interest payments

+ no loss of business ownership

40
Q

What are the disadvantages of trade credit

A
  • no additional finance is being raised

- might have to pay more for goods ham if your payment is made immediately (discounts)

41
Q

What is a grant

A

Grants are fixed amounts of capital provided to businesses by the government or other organisations to fund specific projects

42
Q

What are the advantages of grants

A

+ injection of capital
+ doesn’t need to be repaid
+ no interest payments
+ no loss of business ownership

43
Q

What are the disadvantages of grants

A
  • sometimes you have criteria which you have to meet

- not everyone will qualify for a grant so not an option for every business

44
Q

what is leasing

A

leasing is a method of finance which allows the business to benefit from the use of an asset without having to actually buy it outright

45
Q

what are the advantages of leasing

A
  • avoids the need to finance the asset

- lease company is responsible for repairs and maintenance

46
Q

what are the disadvantages of leasing

A
  • the asset is never fully yours

- may be more costly in the long run

47
Q

what is trade credit

A

paying your suppliers a period of time after the goods or services have been received

48
Q

what are the advantages of trade credit

A
  • no interest payments

- no loss of the businesses ownership

49
Q

what are the disadvantages of trade credit

A
  • no additional finance is being raised
  • you might have to pay more for goods and services than if the payment is made immediately because you might miss out on discounts
50
Q

what are grants

A

fixed amount of capital provided to a business by the government or other organisations to fund specific projects

51
Q

what are the advantages of grants

A
  • injection of capital
  • doesn’t need to be repaid
  • no interest payments
  • no loss of business ownership
52
Q

what are the disadvantages of grants

A
  • sometimes you have specific criteria you have to meet

- not everyone qualifies for a grant

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