2.1.2 external finance (sources of finance)

Question 1

what are known associates

family and friends

Answer 1

private limited companies are able to raise finance by selling shares to family and friends

Question 2

pros and cons of known associates?

Answer 2

+ trust between investor and owner
+ may be flexible
+ longer repayment time
- tension or problems if there’s any misunderstanding

Question 3

what are bank loans

Answer 3

a bank offers money to consumers for a certain time period and the borrower will need to pay interest per month

Question 4

pros and cons of bank loans

Answer 4

\+ flexible
\+ still have full ownership
-high interest rates
- fees and interest can build up
- hard to get

Question 5

what is peer to peer lending

Answer 5

is when an individual takes a loan directly from someone else. it doesnt go through a bank

Question 6

pros and cons of peer to peer lending

Answer 6

\+ flexible
\+ lower rates
\+ fast and convenient
- interest is not tax free
- exposed to high credit risks

Question 7

what are business angels

Answer 7

wealthy individuals who decide to invest in a business with their own money. in return they would often take shares and provide knowledge and experience to help the business flourish.

Question 8

pros and cons of business angels

Answer 8

\+ money does not have to be paid back
\+ less risky
\+ no debt
- less control and ownership
- some profit will go to the investors

Question 9

what is crowdfunding

Answer 9

a large number of people who fund a project making small investments each. the ways to fund are: donate, lend and invest.

Question 10

pros and cons of crowdfunding

Answer 10

+ cheap
+easy
+fast
- not suitable for raising large amounts of money