section 2.1 Flashcards
define share capital
investments giving shareholders part ownership in the company with the right to annual dividend payments
define business angels
very early stage investors in share capital, taking huge risks in hope of occasionally finding a huge success
define crowd funding
funding a project or venture by raising money from a large number of people who each contribute a relatively small amount
define venture capital
risk captial invested in the hope of getting a share in future profits
define p2p (peer to peer) lending
where individuals lend to other individuals without prior knowledge of them- on the internet
define bank overdraft
setting a minimum level for a bank balance thats below zero
define unsecrured loan
when lender has no protection if the borrower fails to repay the money owed
define secured loan
when lender requires security to provide protection in case borrow defaults
define external finance
capital/funds raised outside the business
advantages and disadvantages of using family and friends for external finance
advantage- no interest
disadvantage-might not get enough, may be pressure when asking them
what are the 8 types of external finance
-share capital
-family and friends
-venture capital
-overdraft
-bank loans
-p2p lending
-business angels
-crowdfunding
bank loan advantages and disadvantages
advantages- good rates if business is established can get amount needed, provides guidence
disadvantages- paid back with interest
bank over draft advantage and disadvantage
advantage- instant so it improves cash flow
disadvantage- high interest rates (increases risk)
peer to peer lending advantage and disavantages
advantage- higher returns than savings account
disadvantages- high risk if company goes bust, your not covered up to £85,000 linke with banks
venture capital advantages and disadvantages
advantages- advice and finance
disadvantages- loose some ownership of the business
business angels advantages and disadvantages
advantages-advice and finance
disadvantages- loose some ownership of business, finding a suitable angle
crowd funding advantages and disadvantages
advantages- potential to raise lartge amounts with campaign
disadvantage- investors get share in business or payment with interest
share capital advantages and disadvantages
advantages- potential to raise a lot of capital for expansion, no interets, dont have to pay back
disadvantages- lose decision making power, new shareholders may take over business
define internal finance
capital/funds rained from within a business
3 types of internal finance
-owners capital/personal savings
-retained profit
-selling assests and leasing back
3 reasons businesses may need money
-to set up a business (eg.research, promotion etc)
-to extend or grow(eg. opening new branches)
-working capital (eg.buying new stock)
3 advantages of internal finance
-available immedidatley
-no interest payments
-no credit checks
2 disadvnatages of internal finance
-may not have enough
-not as flexible as external
trade credit
a business obtains its stock from suppliers but doesnt pay immediatly, average credit periods is over 2 months
grants
business starting up may be elegible for grants given by government or charities (grants dont need to be repayed)
limited liability
the owner and business have seperate legal identies. The owner can only loose the amount theyve invested into the business
unlimited liability
the owner and business are seen as one, if business has depts owner is responsible- even if it means selling personal belongings
