external sources of finance Flashcards
external sources
money from outside of business
bank loan
businesses borrow a large sum of money that must be paid over time with interest.
bank loan advantages
repay in installments,makes cash flow easier,don’t issue shares
bank loan disadvantages
back up loan with security,pay back interest
overdraft
pre-arranged amount of money that a business is allowed to use and pay back when it likes
overdraft advantages
short term funding,flexibility to review funding,covers day to day expenses
overdraft disadvantages
interest charged if overdrawn,can be ended by bank at any time
grants
money given by government to aid creation of businesses and doesn’t have to be paid back.
grants advantages
doesn’t have to be paid back,start up new businesses,creates jobs
grants disadvantages
based on application,not available for all businesses
venture capital
business person who invests in start up businesses for a % share of profits
venture capital advantages
large sums of money for investment,expertise to help business,easier to attract other sources of finance
venture capital disadvantages
lose percentage of business,long and complex business,expert financial projections are likely to be required,risk of conflict or perceived interference
hire purchase
when you will buy an asset and pay for it monthly
hire purchases advantages
cheaper,manage cash flow,equipment regularly updated
hire purchase disadvantages
more expensive in long run due to fees
trade credit
Not immediately paying suppliers for stock you are given a certain amount of days
trade credit advantages
not interest paid,helps cah flow
trade credit disadvantages
suppliers might not be willing to provide the credit
share capital
money paid by shareholders to become owners of a limited company
share capital advantages
not interest paid or repayments
share capital disadvantages
shareholders receive part of profits,lose control of business
crowdfunding
small amounts of capital from a large number of individuals to finance new business venture.You will give rewards or returns for the investment.
crowdfunding advantages
fast way to raise finance with no upfront fees,test public reaction of product,alternative fiance option if you struggle to get bank loan or other funding.
