Sources of business finance Flashcards
Short term finance OVERDRAFT
you can withdrawl more money than you actually have in an account however interest rates will be charged on the amount overdrawn
Short term finance TRADE CREDIT
When a supplier allows you a period of time to pay for goods and services.
Advantages of TRADE CREDIT
+builds trust between you and supplier
Disadvantages of TRADE CREDIT
- could get more debt
- wont get paid back
Advantages of OVERDRAFT
+can spend more
+safety net
+emergency access
Long term finance PERSONAL SAVINGS
any money the entrepreneur has saved up, either before starting the business or during the running of the business
Long term finances SHARE CAPITAL
finance is raised by issuing shares to other investors, who invest money in start up businesses, in return for a share of ownership of the business
Long term finance LOAN
a sum of money borrowed that will be paid back over an agreed period of time
Long term finance CROWD FUNDING
ordinary people getting together to raise finance for businesses and projects, these investors take a small stake in a business by contributing towards an online fundraising target
Long term finance VENTURE CAPITAL
a specific kind of share investment that is made by funds managed by professional investors. The minimum investment is usually over £1m, so they dont often invest in small start up businesses
Long term finances RETAINED PROFITS
this is the cash that is generated by the business, which is kept in the business
PERSONAL SAVINGS advantages
+avoids bank charges (interest)
+security
+easily assessable
PERSONAL SAVINGS disadvantages
- could earn interest if kept in the bank (weigh up if a loan would be more beneficial for the business)
- limited amount
LOANS advantages
+fixed interest rates, therefore the business knows how much they will pay back
LOANS disadvantage
- interest rates are high and cost the business
- businesses will be required to sell assets if they are unable to pay back the agreed loan payment
VENTURE CAPITAL advantages
+access to investors knowledge, skills, money and contacts
VENTURE CAPITAL disadvantage
-start up founders are likely to lose some control over business decision making
SHARE CAPITAL advantages
+raise large amounts of finance
+shareholders may not want to be too involved in the day to day running of the business
SHARE CAPITAL disadvantage
-tensions can arise with family and friends and other shareholders
RETAINED PROFITS advantages
+easy to obtain
+very flexible as management control how they are reinvested (no interest)
RETAINED PROFITS disadvantage
- shareholders may prefer dividends (payouts) but no guarantee a business will make profit
CROWDFUNDING advantages
+can be fast way to raise finance with no upfront fees
+alternative finance option if a business has struggled to get a bank loan or traditional funding
CROWDFUNDING disadvantages
- a lot of work is involved to build up interest in potential investors
- if the funding target is not met, any finance that has been pledged will usually be returned to investors
