long term sources of finsnce Flashcards
what are all the long term sources of finance
personal savings
venture capital
share capital
loans
retained profit
crowdfunding
what is venture capital
the money invested by an individual or group nor people that are willing to take the risk of funding a new business in exchange for an agreed share of the profits
what are personal savings
any money that has been saved up by an entrepeneur
what are loans
a loan is an amount of money lent to an individual or a business taht will be paid back with interest over an agreed period of time
what is share capital
the money raised from shareholders when a business becomes a public limited company by offering shares in the business in return for capital
what is permanent capital
a source of finance that never has to be paid back
advantages of share capital
permanent capital- can’t refund, must sell their shares to someone else
no dividends to be paid if the business has a poor year
what are dividends
a sum of money paid regularly by a company to its shareholders out of its profits
disadvantages of share capital
dilutes control for founders- more shares that are issued for shareholders, more that own part of the business
business is vulnerable to take over- persuasion for new management team
what is retained profit
when a business makes a profit, it can leave some or all of this money in the business or reinvest it to expand
what is crowdfunding
a business obtains funding from a large number of people who each pay a small amount of money to the business
advantages of crowdfunding
acts as a form of market research- if people don’t invest, it means the business idea is not attractive or distinctive enough
provides opportunities for individuals to start up even if they don’t have access to other funding
disadvantages of crowd funding
the business must be interesting
may be difficult to reach the funding target
