2.1.2 External Finance Flashcards
Bureaucracy:
- system of government
- important decisions = state officials not elected representatives.
Social enterprise:
-specific social objectives = serve its primary purpose.
- seek to maximize profits while maximizing benefits to society & environment.
- profits are principally used to fund social programs.
Source of finance:
WHERE the finance is coming from
6 external sources of finances:
- Business angels
- Crowd funding
- Other businesses
- Family & friends
- Banks
- Peer to peer funding
Method of finance:
HOW the finance is provided
7 external methods of finance:
1.Overdrafts
2.Grants
3.Loans
4.Share capital
5.Venture capital
6.Donations
7.Leasing
Trade credit
Venture capitalist:
Risk seeking investor or a large scale business
Business angels:
Wealthy individuals - finance - equity (take risks)-business plan
+advice/contacts
-lose equity = less profits = less control
Any small-medium Ltd
Peer to peer funding:
other business owners individuals lend money = interest
+ quick access, relationships
-not large amounts, interest
Established businesses
Collateral/security:
- asset
- investor/bank takes ownership
- until the finance is payed back
Family / friends
Loans/gifts from those known
+ no repay (interest), flexible, similar objectives
-limited, pressure on relationship
Start up/small
Banks loans;
Borrowing fixed repayment (collateral)
+large amount, predictable repay
-risk assets, interest
Banks overdraft
Pre arranged spend more than have in current account
+flexible, use when need
-high interest
Crowd funding
Via internet video online small investors
+reward if donate, way of money
-may not raise enough
Start up with social benefit
Other businesses
Those with healthy cash balance invest
+easy to raise and less bureaucracy
-risk ownership
Debt finance
Business raises money by borrowing
E.g. loans, overdraft, trade credit, peer-peer lending
+ve: Expand quickly & raise money , Less risky
-ve: interest, Lack of control
Highly geared
Borrow too much money over 50%
Equity finance
Finance from selling shares or control of business
Plc
Public limited company
Share/sell stocks on stock market
Anyone (competition?)
May not get price wanted
LTd
Private limited company
Share to family and friends
Flotation
Changing from a private limited company to a Plc
Share capital/Equity finance/capital:
Capital from selling/issuing shares
+dividends if there is profit, raise large amounts, no interest
-ownership, control, complex process
Incorporated business
Venture capital (private equity finance)
From establish business to another for %equity
+large amount, expertise, expansion
-ownership, conflict, initially expensive
Small risky business
Leasing
Benefit of asset not buying it
+avoid financing it, leasing = repairs covered, trade to latest model
-don’t own it, more costly in long run
Many businesses
Trade credit
Pay suppliers period of time after goods/services received
+boost day-day finance
-lose out on discount for immediate repayment
Grants
Fixed capital provided by government
+employment, support cause
-
Factors influencing choice of SOF
- amount
- advice/expertise
- established/ profitable
- quick/time
- type of business (legal structure)
- cost of finance
- what is it being used for
Legal structure
Type of business
debt factoring
selling your debt, give 80% of cash
company chases receivables (keeps 5-10% of capital)
fixed assets
non current assets
