212.Sources Of Finance. Flashcards
Bank overdraft.
Bank overdraft raises finance by borrowing money from bank for short period of time. The amount varies, not fixed like bank loan.
+only pay interest rates when over drawn.
+flexible, business borrow when handling seasonal fluctuations in consumer trends.
-interest rates arent fixed, change depending on economy.
- bank interest rates for overdraft higher thank bank loan.
Trade Creditors.
Trade creditors is when an agreement to buy goods on credit and pay suppliers at later date.
+no interest rate but may charge extra if payment is late.
+flexible, business agree and decide when to pay based on their demand.
-must be paid quickly as short term source of finance.
Factoring.
Factoring is raising finance in short term by selling sale invoices to a third company at a discount.
+receivables turned into cash quickly- help w emergency/at crisis
+focus on sellin invoices rather than collecting.
-factory takes a discount, dont get full invoice.
Bank Loan.
Bank loans raises a fixed amount of finance over a fixed amount of time for a business over a contract. Lower interest rates than a bank overdraft.
+interest rates arranged between business & bank- interest rates dont respond to economic changes..
+arranged over contract- greater certainty of funding- makes business planning easier.
-hard to access for start up business esp as banks require security of business activities like cash flows .
Leasing.
Leasing is when a business rents out an asset rather than buying it. This spreads business fixed costs.
+based on agreement w leasing company, lower risks and greater certainty.
+helps budgeting on assets and retain profits
+helps w business planning like cash flow forecasts- plan business decisions effectively.
-assets are under the leasing companys ownership, pay for damages etc.
Venture Capital.
Venture capital is when a individual/group invests money into business in exchange for shares of business. Usually for growing/start up business w new projects.
+investors experience help w decision making and advice- help w business objectives.
+build brand reputation and add value- gain ca.
-loss of owners control.
-conflicts between owner and investor.
Share Capital.
Share capital is raising finance by selling shares of business. This gives share owners dividends of business profit.
+able to raise value of shares if business succesful.
+takes no interest from business.
-profit goes to dividends, no retained profits for further expansion.
-dilutes owners control and percentage of owneship- at risk of being overrun.
