Theme 2.1 - Raising Finance Flashcards
Three examples of internal finance
- Retained profit
- Owners capital
- Sale of Assets
Three benefits of internal capital
- Free doesn’t involve interest
- No third parties
- Quick
Three drawbacks of internal finance
- Opportunity cost, once gone it’s gone
- Not sufficient enough
- Not as tax efficient
Three examples of external finance
- Family & friends
- Banks
- Business Angels
Benefit and drawback of family & friends
+ Flexible no strings attached, cheap source of finance
- Damage relationships
Benefit and drawback of Banks
+ Offer both short term and long term finance, often provided free advice
- Cautious lending to untested B’s, interest needs to be payed
Benefit and drawback of Business Angels
+ more willing to take a risk than banks, provide advice and expertise
- involved in decision making , share of profits
Methods of finance (7)
- Loans
- Leasing
- Share capital
- Trade credit
- Venture capital
- Grants
- Overdrafts
What is share capital
Finance raised from the sale of shares
What is venture capital
Funds provided by specialist investors
What is trade credit
Agreement with supplier to buy raw materials and pay for at a later date
