External Sources Of Finance Flashcards
What is a mortgage
A legal agreement by which a bank lends money at interest in exchange for taking title of the debtors property
Mortgage advantage
Spreads the payment out
Manageable and affordable
Mortgage disadvantage
Carrying out debts for a long period of time
Remember to keep paying your repayments
What is hire purchase
An agreement whereby a customer agrees to contact to acquire an asset by paying for a set period of time
Hire purchase advantage
High spec assets
Low interest on other funding costs
Hire purchase disadvantage
Dead money
At the end you don’t own the product
What is owners capital
It is the money in the business that owners or shareholders have invested in it
Owners capital advantage
The ownership percentage will always stay the same
Owners capital disadvantage
Make important company decisions
Could lose control of your business if you sell too much stock
What is a loan
A lump sum that you get from the bank and you have to pay back with interest
Loan advantage
Easy way of getting money into the business
You can get a big amount
Loan disadvantage
Interest is high
If you don’t pay back you can get into a debt cycle
What is crowdfunding
This is a way for people to put money into business through websites
Crowdfunding advantage
Easy way to get money
Quick to set up
Crowdfunding disadvantage
Can take a long time to get a lot of money
Sometimes you might not even get anything
What is venture capital
A form of private equity financing it that is provided by venture capital firms of funds to start-ups early-stage and emerging companies
Venture capital advantage
Easy money
This can help your company to grow quickly
The money is yours to keep
Venture capital disadvantage
High upfront costs
The investors own stake in the business
What is debt factoring
A process whereby a business will raise an invoice for work completed passes to a debt factoring provider he will then chase the payment from the debited on behalf of their client
Debt factoring advantage
Fast way of getting your money
Helps your business to get more income
Debt factoring disadvantage
Reduce overall profit for business
What is leasing
This means you pay over a period of time but has high interest and you never own the product
Leasing advantage
Affordable
Can chose to pay the full amount at the end of the contract
Leasing disadvantage
You never own the product
The interest and APR could be high
What is trade credit
A loan extended by one trader to another when the goods and services are bought on credit
Trade credit advantage
Short-term financing
affordable for the business
There’s not a big sum of money coming out
Trade credit disadvantage
Fees and penalties
Interest is high
Loss of trade credit privileges
What is a grant
A sum of money given to business by the government or other companies
Grant advantage
Easy quick money
Can help your business to compete with other competitors
Grant disadvantage
Need to do a lot of research before applying for a grant
Success rate is very low
What is a donation
Money given to the business from the public so they can help the business to meet the aims and objectives
Donation advantage
How achieve business aims and objectives
Easy quick money
Donation disadvantage
Might need a lot of money to make an impact
Some donations won’t even be above a pound
What is peer-to-peer lending
Type of business loan where a large number of private investors learn to a business usually through an online platform
Peer-to-peer lending advantage
Quick easy money
They normally invest a lot of money
Peer-to-peer lending disadvantage
They will want the money spent where they want it
They will have an equity percentage in your business
They can pull out any time
What is invoice discounting
Another type of borrowing against two outstanding invoices and is used to help improve the companies cash flow (loan)
Invoice discounting advantage
Helps achieve business ambitions
Helps business to grow
Invoice discounting disadvantage
Have to have an A+ credit rating
Interest
