source of finance -external 2.1.2

Question 1

definition of external source of finance

Answer 1

External sources of finance refer to money that comes from outside a business

Question 2

family and friend (source of finance)

Answer 2

provide chare capital (taking an equity from profit)or can lend money

Question 3

banks (source of finance)

Answer 3

to get a loan from a business collateral would be needed eg car house

Question 4

peer to peer funding

Answer 4

online matching platform to match individual who wants to lend (high interest)to borrowers .

Question 5

disadvantage of peer to peer funding

Answer 5

• high interest rates
• high credit risk
• less protection

Question 6

advantage of peer to peer funding

Answer 6

• easy to access funding
• faster ,online finance
• flexible terms

Question 7

business angel

Answer 7

An angel investor is an individual who provides capital for a business or businesses start-up, usually in exchange for convertible debt or ownership equity. Angel investors usually give support to start-ups at the initial moments and when most investors are not prepared to back them

Question 8

advantage of business angel

Answer 8

• no repayments or interest
• access to BA mentoring or management skills
• access to your investor’s sector knowledge and contacts
• no need for collateral - ie personal assets
• BAs are free to make investment decisions quickly

Question 9

disadvantage of business angel

Answer 9

• not suitable for investments below £5,000 or more than £500,000
• takes longer to find a suitable angel investor
• giving up a share of your business
• less structural support available from a BA than from an investing company

Question 10

defition of crowdfunding

Answer 10

a way of getting small investors to put money into a new business often with an incentive such as to get a sample product or service in return for their investments

Question 11

advantage of crowdfunding

Answer 11

• it can be a fast way to raise finance with no upfront fees
• sharing your idea, you can often get feedback and expert guidance on how to improve it
• investors can track your progress - this may help you to promote your brand through their networks
• it’s an alternative finance option if you have struggled to get bank loans or traditional funding

Question 12

disadvantage of crowdfunding

Answer 12

• when you are on your chosen platform, you need to do a lot of work in building up interest before the project launches - significant resources (money and/or time) may be required
• if you don’t reach your funding target, any finance that has been pledged will usually be returned to your investors and you will receive nothing
• failed projects risk damage to the reputation of your business and people who have pledged money to you
• if you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept
• getting the rewards or returns wrong can mean giving away too much of the business to investors

Question 13

definition of other business

Answer 13

c=some companies allocate a chunk of their capital to ‘seedcorn’ which are early stage investment into a business.in hopes of at least 1 being the winner. this is high risk high rewards.