external sources of finance: medium term and grants Flashcards
why are medium term and external sources of finance used to obtain and support?
obtain assets and support growth
what are the medium term and external sources of finance usually paid for over how long time?
usually paid over a slightly longer period of time
hire purchase (HP):
how does an enterprise purchase an asset?
by paying a deposit followed by regular monthly instalments over a
period of time.
hire purchase (HP):
when does an enterprise own the asset?
Once the enterprise has paid all the
instalments
hire purchase (HP):
how is it a more expensive method?
It is a more expensive method of purchase
than buying the asset with cash at the outset
loans:
what are loans?
This is money borrowed by the enterprise at an agreed interest rate
loans:
when are loans paid back over?
a period of time, for example 5 or 10 years.
loans:
why may loans be used to purchase?
non-current assets such as vehicles, machinery or property
loans (advantages):
what happens even if general interest rates increase?
the interest rate is fixed
loans (advantages):
why is budgeting easier?
as it is a fixed cost
loans (advantages):
what is usually lower than overdraft?
interest rate
loans (disadvantages):
what may high interest rates and bank want?
security on the loan
loans (disadvantages):
what may lead to bankruptcy?
failure to repay the loans
investment from business angels:
why do business angels invest their money in enterprises?
for a minority stake of the enterprise
investment from business angels:
what do business angels offer?
ofer mentoring and support to the entrepreneurs
investment from business angels (advantages):
what can entrepreneurs access to?
business angel’s knowledge and contacts
investment from business angels (advantages):
what do entrepreneurs not pay?
there are no repayments or interest
investment from business angels (advantages):
what can be made quickly?
decisions
investment from business angels (disadvantages):
what will take a long time?
takes a long time to find a suitable investor
investment from business angels (disadvantages):
what does the entrepreneur have to give up?
a share of the enterprise
leasing:
what does leasing allow an enterprise to have?
have use of the asset, such as an expensive item of equipment, over a period of time without buying it
leasing:
how does the owner of the asset lends it to the enterprise?
for regular payments
leasing (advantages):
what can they have without having to pay out a large amount to buy it?
modern equipment
leasing (advantages):
what can they have the asset it requires for?
for the time it needs it
leasing (advantages):
what is the asset not left with?
with an unwanted asset at the end
of the leasing period
leasing (disadvantages):
what does it mean if the enterprise does not own the asset?
it returns the equipment to the owner at the end of the leasing period.
peer-to-peer lending (P2P):
what is a P2P?
when small investors invest in an enterprise, usually a start-up, in exchange for a return on their investment.
peer-to-peer lending (P2P):
what may it be used by enterprises for?
It may be used by enterprises that could have difficulty getting traditional forms of finance, such as a bank loan
peer-to-peer lending (P2P):
what may be higher than traditional types of finance?
interest payments
government and charitable grants:
why are local and national government grants used?
to develop the economy
government and charitable grants:
why might government and charitable grants be given to certain enterprises?
for example to enable them to create jobs in a particular area
government and charitable grants:
what do charitable grants give financial help to?
enterprises in need, usually social enterprises or enterprises whose activities may further the cause of the charity.
government and charitable grants:
what do not need to be paid back?
grants
government and charitable grants:
who are able to obtain grants?
Only certain enterprises
