chapter 6 Flashcards
sources of finance
source of finance
the way in which an enterprise gets the money it needs to finance an activity
finance
the activites of an enterprise relating to money
start-up
the period of an enterprise when it is first set up
internal sources of finance
money that is found within the enterprise
interest
often, when an enterprise borrows money from a lender they will have to pay back the amount they borrow pus an agreed amount. the additional amount is called interest.
why do enterprises need finance
to buy or rent premises
purchase equipment
additional funds for activities
sources of finance suitable for start-up businesses
personal savings(internal source of finance
investment from family and friends (external source of finance)
bank overdrafts (external)
bank-building society loan(external)
leasing(external)
mortgages(external)
community sources(external)
grants(external)
subsidies(external)
crowdfunding(external)
selling shares(external)
sources of finance suitable for start-up businesses
personal savings
a small investment in a business usually paid back in interest
advantages- dont need approval to use ur own money
if successful you get ur money back+ interest
disadvantages- if the enterprise if unsuccessful you lose the money
sources of finance suitable for start-up businesses
investment from friends or family
a small investment in a business normally paid back in interest
advantages- often keen to support you
usually charge lower interest than other lenders
disadvantages- if enterprise is unsuccessful lose money
can cause upset
sources of finance suitable for start-up businesses
bank overdrafts
a form of short term lending by the bank when no money is left in enterprises bank
advantages- can cover a short term fincanial issue
disadvantages- high interest
sources of finance suitable for start-up businesses
bank/building society loan
a larger, longer investment paid back in agreed interest rate
advantages- larger sums of money involves
disadvantages- need to provide detailed fincancial info. to get loan approved.
interest rate is high
if you fail to make payments then the bank seizes assets
sources of finance suitable for start-up businesses
leasing
rent a piece of equipment
advantages- short term this is cheaper than buying
after a fixed time the equipment is updated
disadvantages- long term this can be expensive
sources of finance suitable for start-up businesses
mortgages
a larger longer loan used to buy property and paid back in agreed interest
advantages- large sums of money
much lower interest rate
disadvantages-need to provide detailed fincancial info. to get loan approved.
if you fail to pay back they will take the property
sources of finance suitable for start-up businesses
community sources
some communitry organizations set up funds that can be used for projects that support the community
advantages- can bring money into the community= improves lives there
dont need to pay back
disadvantages- can only spend money on a community project
need to use the money as agreed otherwise taken
sources of finance suitable for start-up businesses
grants
money offered to the enterprise usually by gov. for specific projects
advantages- can bring income into enterprises for expensive projects
doesnt need to be paid back
disadvantages- can only spend money on that specific project otherwise taken
sources of finance suitable for start-up businesses
subsidies
a gov. will sometimes provide a subsidy to a particular enterprise to support its development or for public benefit
some form of cash payment or a reduced rate of tax
advantages- will either bring cash into the enterprise or reduce tax bill
disadvantages- only available for specific types of enterprises
may have to meet certain conditions
sources of finance suitable for start-up businesses
crowdfunding
using websites and social media to encourage large no. of people to invest small amount of money in return for a stake
advantages- investments together= large amount of money
disadvantages- if fails then each investor loses money
sometimes dont raise enough
sources of finance suitable for start-up businesses
selling shares
people invest money into the enterprise for a share of ownership and the profits
advantages- possible to raise a large sum.
disadvantages- shareholders expect to have a say in how it is run
selling to many can lead to the enterprise being bought completely or taken over
external sources of finance
money found outside the enterprise
assets
objects that are owned by the business
founders
the people who start the company
sources of finance for continuing trading and expansion
personal savings
retained profits
privat institutions
venture capital
issue shares
sources of finance for continuing trading and expansion
personal savings
a small investment in a business usually paid back in interest
advantages- dont need approval to use ur own money
if successful you get ur money back+ interest
disadvantages- if the enterprise if unsuccessful you lose the money
sources of finance for continuing trading and expansion
retained profits
money that is kept aside from profits of the enterprise to be reinvested
advantages- do not need approval to use this money
dont need to pay interest
disadvantages- if your enterprise has stakeholders you may need to consult them bc it can reduce how much they make
