External sources of finance Flashcards
EXTERNAL SOURCES
Are sources of money from outside the business, from the owner or from previous business income.
BANK LOAN
Where the business will borrow a sum of money that must be repaid overtime by interest.
BANK LOAN:
ADVANTAGES
- Repayments in instalments
- Makes cash flow easier
- Don’t have to issue shares
BANK LOAN:
DISADVANTAGES
- Have to back up the loan with security e.g assets of the business
- Pay back interest
OVERDRAFT
A pre-arranged amount of money that the business is allowed to use and pay back when it likes.
OVERDRAFT:
ADVANTAGES
- Enable short term funding
- Flexibility to review the funding
- Covers day to day expenses
OVERDRAFT: DISADVANTAGES
- Interest charged when overdrawn, can be ended by the bank at anytime.
GRANTS
An amount of money that is given, to aid in creation of a business. This money DOES NOT have to be paid back
GRANTS:
ADVANTAGES
- Doesn’t have to be paid back
- Helps start up new businesses
- Creates jobs
GRANTS:
DISADVANTAGES
- Based on application
- Not available to all businesses
VENTURE CAPITAL
Sometimes called an investor, it is a business person who invests in start up businesses for a % share of the profits
VENTURE CAPITAL:
ADVANTAGES
- Potential for large sums of money for investment
- Expertise to help the business
- Makes it easier to attract other sources of finance
VENTURE CAPITAL:
DISADVANTAGES
- Lose a percentage of the business
- A long and complex process
- Expert financial projections are likely to be required
- Risk of conflict or perceived interference
