Finance ( Catch Up ) Flashcards
Finance
Money
Sources of finance
This is where we get finance from
Businesses need finance for
Starting up
Expansion
Bill payments
Take over bid
Internal growth
Replacing machinery or equipment
Internal sources of finance
Owners investments
Retained profits
Sale of fixed assets
Sale of stock
Debt collection
External sources of finance (definition)
Finance provided by people or institutions outside the business,creates a debt that requires payment
External sources of finance
Loans
Overdrafts
Share capital
Debentures
Trade payables
Venture capital
Mortage
Crowdfunding
Business overdrafts
A facility that will allow you to withdraw more money from your account than is available
Business overdrafts ( adv )
Flexible - you only borrow what you need at the time making it cheaper than a loan
Quick to arrange
Business overdrafts ( dis adv )
Usually only available for small sums of money
Expensive as high rate of daily interest is charged
Bank loan ( adv )
Can be arranged quickly
Can be repaid over a long period of time
Bank loan dis adv
Interest has to be paid in addition to loan amount
Bank loan dis adv
Interest has to be paid in addition to loan amount
Mortgage
Long term source of finance. A sum of money borrowed form the bank that is secured against a property and payed in instalments
Mortgage (adv)
Mortage is given for a long period of time
Large amounts of finance can be raised quickly
Mortgage ( dis adv )
Interest is charged
Property can be lost to the mortgage lender if repayments are missed
Share definition
Money raised by shareholders through the sale of ordinary shares. Buying shares gives the buyer part ownership to the business.
Share capital ( adv )
Shareholders cannot refund there shares ( they must find someone else to sell them too )
No divededs to be payed if the business has a poor year. Shareholders are not promised dividends and are only payed them is the business has made sufficient money to pay all its costs
Share capital ( dis adv )
Dilutes control for the founders. The more shareholders the less control the founders have over
As a business grows it can become vulnerable to a takeover. This is bad as they are sold publicly and if an individual or group have enough shares they can persuade other shareholders to vote for a new management team.
Crowd funding
Involves a large number of people investing small amounts of money in a business usually online.
Crowdfunding ( adv )
Acts as a form of market research. If people don’t invest it means the idea is not attractive or distinctive enough, indicating the business is likely to fail
Provides opportunity’s for individuals to start up a business even if they don’t have access to other sources of funding.
Crowdfunding ( dis adv )
Business must be interesting. Crowdfunding is ostensibly successful when business is interesting appealing and innovative
Difficult to reach funding target .
Crowdfunding ( dis adv )
Business must be interesting. Crowdfunding is ostensibly successful when business is interesting appealing and innovative
Difficult to reach funding target .
