External Sources Of Finance

Question 1

External sources of finance

Answer 1

External sources of finance are sources of money coming from the outside e.g:
Family and friends
Banks
Peer-to-peer lending
Business angels
Crowdfunding

Question 2

Family and Friends (advantages)

Answer 2

They may agree to a longer repayment period.

They are trustworthy and will be flexible.

Question 3

Family and Friends (disadvantages)

Answer 3

Family and friends can easily fall out due to misunderstandings that may occur during the arrangement.
They might get offended if you draw up a formal written agreement as precaution.

Question 4

Banks (advantages)

Answer 4

Keep control of your company.

Bank loans are temporary.

Question 5

Banks (disadvantages)

Answer 5

High interest rates.

Difficult to obtain.

Question 6

Peer-to-peer lending (advantages)

Answer 6

Lower interest rates.

Easier to access.

Question 7

Peer-to-peer lending (disadvantages)

Answer 7

No insurance/government protection.

P2P lending covers a wide range of different platforms so you need to do alot of research before investing in it.

Question 8

Business Angels (advantages)

Answer 8

No need for collateral e.g. your personal assets.

BAs are free to make investment decisions quickly.

Question 9

Business Angels (disadvantages)

Answer 9

Takes a long time to find a suitable angel investor.

Less structural support available than from an investing company.

Question 10

Crowdfunding (advantages)

Answer 10

Your investors can become your most loyal customers through the financing process.
It is a good way to test the public’s reaction to your product.

Question 11

Crowdfunding (disadvantages)

Answer 11

If you dont reach your funding target, all the finance you did recieve has to be returned.
Failed projects can damage your reputation.