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business > External Sources of Business Finance > Flashcards

External Sources of Business Finance Flashcards

1
Q

External Sources

A

Sources of money from other people putting money into the business

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2
Q

Bank loan

A

Businesses borrow a lump sum of money must be repaid over time.

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3
Q

Bank loan advantages

A

Repayments in installments
Cash flow easier
Don’t have to issue shares

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4
Q

Bank loan disadavantages

A

Back up the loan with security

Pay back interest

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5
Q

Overdraft

A

Prearranged money that business is allowed to use when it has none

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6
Q

Overdraft advantages

A

Short term funding
Flexibility to review funding
Covers day to day expenses

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7
Q

Overdraft disadvantages

A

Interest charged, can be ended by the bank at any time

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8
Q

Grants

A

Amount of money given by government to aid the creation of a business

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9
Q

Grants advantages

A

Doesn’t have to be paid back
Helps start up a new business
Creates jobs

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10
Q

Grants disadvantages

A

Based on application

Not available for all business

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11
Q

Venture Capital

A

Business person who invests in a start up business for % share of profits

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12
Q

Venture Capital advantages

A

Potential large sums of money
Expertise to help the business
Easier to attract other sources of finance

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13
Q

Venture Capital disadvantages

A

Lose percentage of business
Long complex process
Expert financial projections likely required

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14
Q

Hire Purchase

A

Buy an asset and not pay for it monthly, you do not own the asset until last payment made.

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15
Q

Hire Purchase advantages

A

Cheaper
Manage cash flow
Equipment regularly updated

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16
Q

Hire Purchase disadvantages

A

More expensive in the long run

17
Q

Trade Credit

A

Not immediately paying suppliers for stock

18
Q

Trade Credit advantages

A

No interest paid

Helps cash flow

19
Q

Trade Credit disadvantages

A

Suppliers might not provide credit

20
Q

Share Capital

A

Money paid by shareholders become owners of company

21
Q

Share Capital advantages

A

No interest paid or repayments

22
Q

Share Capital disadvantages

A

Shareholders receive part of profit

Lose control of business

23
Q

Crowd Funding

A

Small amount of capital from large number of individuals finance new business venture

24
Q

Crowd Funding advantages

A

Fast way raise finance
Test publics reaction
Alternate finance option if struggle on loans

25
Q

Crowd Funding disadvantages

A

A lot of work to build up interest
Don’t meet target, money is returned to investors
Rewards or returns wrong mean giving too much of business to investors

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