External finance Flashcards
Business Angels
Individuals who typically invest £10,000 - £100,000 in exchange for stake in the business
Three features of peer-to-peer lending
1) All loans are insecured no protection for lenders
2) The whole arrangement is conducted for profit
3) No previous knowledge or relationship between lenders is needed
Crowdfunding
Where a large number of individuals (the crowd) invest in a business or project on the internet, avoiding the use of a bank.
Bank Loan Definition, Advantage, Disadvantage
Amount borrowed is repayed over a period of time.
+ Can be used for short or long term periods
- Potentially unsecured loans so the lender has no protection if the borrower fails to repay money owed
Mortgage Definition, Advantage, Disadvantage
Secured loans where borrower provides assets as Collateral
+ Usually cheaper than unsecured loans as theyre is less risk
- Can end up paying a lot more than you borrowed due to the long time period and interest over time
Trade Credit Definition, Advantage, Disadvantage
Buying assets or materials and paying for them at a later date using trade credit.
+ Flexibility in payment terms
- Delaying payments in goods can result in poor business relations with the supplier
Leasing Definition, Advantage, Disadvantage
A contract where a business acquires the use of resources in return for regular payments.
+ Maintenance and repair costs are not the responsibility of the user
- Over a long period of time, leasing is more expensive than the outright purchase
Debentures Definition, Advantage, Disadvantage
Long term loan to a business
+ Money is quick and can have fixed interest rates
- Can create pressure due to having repayment at set rate
Share Capital Definition, Advantage, Disadvantage
Money introduced through the sale of shares
+ Capital is rqised efficiently and through large amounts
- Open to lose control of business as no limit on amount of shares to buy
Venture Capital Definition, Advantage, Disadvantage
Specialists in funds for small-medium sized businesses, often invest after initial start-up and prefer tech companies.
+ Likely to exit after 5 years so good for a short termisim approach to finance
- Often require a stake so buisness loses control and a share of the profit
Bank Overdraft Definition, Advantage, Disadvantage
Agreement that business can spend more money than what it has in it’s account.
+ Agreed limit and interest is only charged when the account is overdrawn
- Bank has legal right to call in the money owed at any point which can cause pressure and business failure
Grants Definition, Advantage, Disadvantage
Available through a wide range of government schemes.
+ Most grants have no repayment so is massively significant
- Typically for small business so is hard to acquire and unreasonable
