Raising finance Flashcards
What is a overdraft?
A temporary arrangement which allows the business to draw out more money than is in its account, up to an agreed limit.
Advantages of an overdraft
Flexible source of finance
Quick and easy to arrange
Disadvantages of an overdraft
expensive if used over a long period of time
Arrangement fees can be high
Can be removed at short notice
Has to have a business account with the bank for this to occur.
What is a loan?
A good source of finance for assets such as machinery and equipment and other start-up costs.
Advantages of a bank loan
The length of the loan can be matched with the need of the business.
Interest is fixed.
Disadvantages of a bank loan
Interest is paid regardless of weather the business is making a profit or not.
Risk of loosing personal assets if secured against them and they cant pay it back.
What is incorporated?
The process of forming a limited liability company. The process involves creating a separate legal identity for the business, and the creation of shares, or equity.
What is a venture capitalist?
Usually a professional investor, often another company, interested in high growth, high risk businesses, who will invest an amount into a business in return for shares, and an expectation of high returns. Venture capitalist are usually interested in larger investments of around £250,000 or more.
What is a business angel?
A wealthy, entrepreneurial individual willing to invest in small, high risk business who expects a high return. The business is likely to have a high growth potential.
