Equity Finance (4) Flashcards
Three likely characteristics of SME?
Entity is likely unquoted
Ownership of business restricted
It is not a micro business
Why are SMEs viewed as unattractive investment opportunities?
Don’t have long track record
Bad internal controls and asset security
Investors less information
What is done when an SME requests a bank loan?
Bank will look to see what security (collateral) is available for any loan provided
Why is collateral important?
It can reduce the level of risk a bank is exposed to in granting a loan to a new business
Why do shares from an SME lack marketability?
A shareholder wishing to sell has to wait until an investor wishes to buy
Why do institutional investors usually investor in larger companies?
To maintain what they see as an acceptable risk profil
Tax advantages in SMEs?
Might eqncourage investors to invest in SME
What is usually the case with smaller business trying to obtain a bank loan?
Longer-term loans are often easier to obtain than medium-term loans because the longer-term loans are easily secured with mortgages against property
What does tax-allowable depreciation encourage?
Encourage companies to invest
What do venture capitalists provide?
Equity capital to small and growing businesses and is usually provided by a wealthy individual or a venture capital firm
What do venture capitalists do before investing?
A product or products with strong potential
Solid management
Potential for high returns
What do private equity funds attempt to do?
Gain control over a company in order to put it through a restructuring programme before either selling to another fund or listing the company on the stock market
What is the difference between private equity and venture capital?
Private equity funds usually seek total control of the target company, whereas venture capitalists provide growth finance in return for partial control
What are business angels?
Private individuals (or small groups of individuals) who are prepared to invest equity (or perhaps debt) into small businesses with big potential
Why do government’s assist in investments?
Avoid lost investment opportunities
Support innovation and boost employment
