Capital Structure (4) Flashcards
What do SMEs face?
Particular problems in raising external finance. Referred to as a funding gap
What does funding gap often result on?
Business owned by a relatively small pool of investors
Greater failure rate among small companies
Less of a track record
What is the maturity gap?
The difficulty in obtaining medium-term financing
Why can medium sized companies sometimes struggle to obtain more debt finance?
As they have inadequate security in the form of assets
How has government tried to encourage investment in SMEs?
By underwriting a proportion of the value of loans made to SMEs and by direct assistance such as grants
What is business angel financing?
Wealthly individuals or groups of individuals who invest directly in an SME
Step 1 in supply chain finance
Company A buys goods from Company B on 60 days credit
Step 2 in supply chain finance
Company A approves the invoice for payment and uploads it to SCF platform
Step 3 in supply chain finance
Company B can see invoice has been approved for payment and either:
Wait 60 days to receive cash from A.
Receive cash within five days from the bank in return for a discount
Step 4 in supply chain finance
Company A pays full amount to the bank
Benefits to each company in SCF
Company A pays in planned 60 days
Company B has cash early
Bank has earned the discount
What is crowdfunding?
Allows company to access finance via a crowdfunding platform to pitch for finance from a large number of investors
Benefits of fintech for crwdfunding?
Millions of potential investors can be accessed
What is crowdfunding?
Equity finance. Peer-to-peer lending is debt finance
Benefits of crowdfunding platforms?
Available to businesses of all sizes
A quick setup process
Improves awareness and attracts customers
