Sources of finance Flashcards
What may be the cost of finance?
interest, dividends
Why is finance dependent on structure?
LTD and PLCs find it easier to raise finance than a sole trader
What finance may be used by start ups?
Founder finance (cash), bank loan, crowdfunding, friends and family
What finance may be used by an established business?
Retained profits, working capital, bank loan
What are retained profits?
Finance provided from profits made, doesn’t dilute ownership but shareholders may prefer debt, more profit less risk when becoming more geared
What is working capital?
Current assets, cash in the bank
Manages cash flow and short-term expenses
not sustainable
What are asset disposals?
selling spare land and equipment
one-off, short term
big inflow
What is share issue?
issuing new share to raise funds
more equity than debt
costly and may have to dilute existing shareholders
What are bank loans?
medium to long-term longs
paid with interest
over a fixed period - used for fixed assets
mortgage
little flexibility
What is a bank overdraft?
short-term
high interest
used when there is cash flow issues
What are debentures?
issued bonds by company
secured against assets
long-term, fixed interest
What is venture capital?
medium term
specialist investors, knowledge of industry
high risk high reward if not they sell
loss of control, specialist wants large share
dragons den
What is supplier finance?
Trade credit
Short term
Provide in advance
Good relationship, good payment terms
