External Finance Flashcards
Define Over drafts
With agreement of the bank, a business can spend more money than it has in its account, resulting in a negative balance
Define Trade credit
A period of time given to a customer between receiving the goods and payment being due. Often 30 days.
Benefits of Trade Credit
- Suitable for buying raw materials from suppliers
- Can pay back after 30 days
Drawbacks of trade credit
- Delays in payment can damage relationship with suppliers
Grants
A source of finance from government or a charity.
Benefits of Grants
- Grants available for small businesses
- Industry specialists
Drawbacks of Grant
- Given for social, environmental or economic benefits
leasing
When a business rents resources such as property or equipment for a set period of time.
Benefits of leasing
No large sums of money are needed to buy the equipment
Drawbacks of leasing
- Over a long period of time leasing is more expensive
- Loans cannot be secured on assets which are leased
Bank loans
A form of finance from a bank or finance institution with a set repayment plan.
Benefits of Bank Loans
Entitled to sell assets to repay
Drawbacks of Bank loans
Buisness has intrest to pay
Lender has no protection if the borrower fails to repay the money
Venture capital
A private equity investor who may invest in companies showing high growth potential, the business may be considered too risky for other investors, in return for equity.
Benefits of venture captial
Specialists funding small and medium sized businesses
Drawbacks of venture capital
Investors have some control and entitled to share in profits
Share capital
A way of raising finance through sale of shares. If more shares are issued this will reduce the percentage of ownership held by each share.
Benefits of share capital
Can raise very large amounts of capital
Drawbacks of share capital
Only available to LTD and PLC
Pressured to selling assets when large capital is required
Crowd funding
Where many individuals invest into a business project on internet sites
Benefits of crowd funding
Cheap and east to set up
Investors will be a large number of individuals
Transactions are online so no delay
Drawbacks of crowd funding
Not suitable for raising large amounts of money
