Sources of finance Flashcards
What are sources of finance?
Sources of finance refer to the various options available to acquire additional funds.
Capital
The owner invests their own money into the business.
Its Long term and internal
Advantages of Capital
- No Debts
- No interest
What are the disadvantages of capital
Limited funds
Business Angel/Silent Partner
An individual who invests money in exchange for shares but isn’t involved in the business.
(Long-term/ External)
What are the disadvantages of a business angle
- Shared profit
- Potential disagreements
What are the advantages of a business angle?
- More funds available
- Makes all the decisions
Loan from a Family or Friend
Borrowing/Loaning money from a family member, friend, or colleague
(Negotiable time length/ can be internal or external)
What are the advantages of a Loan from a friend/family
- No fixed return period
- Long term
What are the disadventages of a Loan from a friend/ family
- Potential disagreements or sudden withdrawal
- Limited money
Finance lease
A lease is an agreement to rent an item for a fixed number of periods. The business has the right to purchase the item at the end of a lease agreement.
Operating lease: The item must be returned to the financier at the end of the lease agreement
(short-term/External
What are the advantages of a Finance lease?
No upfront cost
What are the disadvantges of a finance lease
Possibly overpaying
Credit Card
Use to purchase an item (short-term/External)
What are theadvantages of a credit card
Easy access & use
What are the disadvantages of a credit card
- Playback quickly
- expensive
- High-interest rates
Bank Overdraft
A loan made by a bank in order for customers to withdraw more money than his/her amount of money deposited in the bank account (short-term/ External)
What are the advantgaes of a Bank overdraft
- More money
- Simple use
What are the disadvantages of a bank overdraft
- Limited amount
- High-interest rates
Term Loan
Source of finance obtained from a bank over a long period of time
(long term/Eternal)
What are the advantages of a term loan
- No alterations to the agreement
- Larger amounts of money withdrawn
- Lower interest rates
- Longer period to pay off the loan
What are the disadvntgaes of a Tem loan
- Interest repayments
- Long and challenging process
Equipment Financing
A loan, or lease that is used to obtain business equipment
(Long-term External)
Whate are the advantages of an Equipment financing
- Preservation of capital
- Spread the cost over time
- Tax advantages
- Fixed interest rates
- Asset as collateral
Whatr are the disadvantgaes of an equipment financing?
- Total cost of financing
- Ownership cost
- Restrictions on use
- Default risk
