sources of capital Flashcards
What is ‘capital’ in the context of starting a business?
Money used to start a new business
Capital covers all costs of production and generates sales until enough revenue is generated to break-even, which could take 3 years or more.
List the six main sources of finance for a business.
- Personal savings of the business directors
- Loans or gifts from friends and family
- Bank loans
- Grants from government or charity
- Investment from business angels
- Crowdfunding
What is a benefit of using personal savings to finance a business?
No need to repay anyone else
It is the easiest source of finance for those who can access it.
What is a disadvantage of using personal savings for business financing?
Easier to fail as nobody else checks on the viability of the business plan
Not everyone has savings.
True or False: Loans from friends and family require a detailed viability check.
False
Friends and family may gift or loan start-up capital without detailed checks.
What is a key feature of bank loans for businesses?
Monthly repayment plan with interest added
The interest depends on the amount borrowed, the repayment length, and the Base Rate of interest.
What is a grant?
A gift of money from government or charity
Grants do not need to be repaid.
What must businesses meet to qualify for grants?
Grant criteria
Examples include reducing crime, improving health, or raising literacy rates.
What does an angel investor receive in return for their investment?
A percentage of profits and some control over decisions
This is often referred to as a ‘stake’ in the business.
What is a potential downside of working with angel investors?
A large percentage of profits may be lost to the angel investor
The angel may also make harsh demands to guarantee their return.
Fill in the blank: Crowdfunding involves using online platforms such as _______ or _______ to raise money.
crowdfunder; kickstarter
What is one advantage of crowdfunding?
No need to repay
It helps raise awareness of the business and can foster loyalty among supporters.
What might the eco-case start-up need capital for?
Start-up costs
Examples of start-up costs can include equipment, marketing, staffing, and operational expenses.
What is a disadvantage of crowdfunding?
It can take a long time and a lot of effort to generate the capital needed
Entrepreneurs may also need to fulfill many rewards, which can take time away from the business.
