types of finance Flashcards
what is retained profit? is it short term or long term?
retained profit is profits kept by the business to then be later on reinvested back into the business
retained profits: advantage and disadvantage
(+) no interest, and don’t have to pay back
(-) shareholders may want that money back as a dividend
what is sales of assets- short or long term and why?
when a business sells assets they currently have, for example a delivery van - short term because you can only sell it once
sale of assets: adv and disadv
(+) creates value/ a use for idle resources
(-) the business loses the use of that asset (e.g. no longer have a delivery van)
what is owners owners capital? - short term or long term
personal savings of a business owner that is invested in the business
owners capital- adv and disadv
(+) no interest needed!
(-) owners could make a loss rather than a gain
what is crowdfunding- short term or long term?
when a business wants to get a project off the ground so they ask people to invest into their business- short term
crowd funding- adv and disadv
(+) cheap and easy to set up
(-) hard to raise large amounts of money with it
what is a bank loan- short term or long term?
a bank loan is money the bank loans you and you have to pay it back- can be both short term or long term, depending on the loan
bank loan- adv and disadv
(+) an negotiate how much you want from the bank
(-) includes interest and you have to pay it back
what is share capital- short or long term?
the money a company raises when they sell shares to investors- long term
share capital- adv and disadv
(+) can get large amounts of capital with no interest
(-) only available for Ltd (people you know) and Plc (the public)
what is trade credit- short or long term?
when a business can’t pay their supplier upfront, so they ask for an extension/deadline to pay the money back by- short term
trade credit- adv and disadv
(+) good when buying raw materials from suppliers, because you can then make the revenue then pay the supplier back
(-) delays in payments can affect relationships with the supplier
what is venture capital- is it short term or long term?
venture capital is when an investor invests into your business and demands a percentage of your business in exchange (e.g dragons den!)
venture capital- adv or disadv
(+) you can gain expertise from the investor
(-) have to give away a percentage of your earnings
what is peer to peer lending?
the lending of money to individuals which avoids the bank
adv and disadv of peer to peer lending
(+) interest rates are better than the bank and can be easily completed online
(-) if you are a lender, access to cash may not be instant
what is a business angel?
individuals who invest in exchange for a stake in a business
what is unlimited liability?
where everything is carried out in the name of the owners, and there is no legal difference between the owner and the business
2 implications of unlimited liability
- if their business fails, the owners have to meet the debts of the business with their personal resources like their house
- the owner is also financially liable if the company is sued
2 implications of limited liability
(+) the owners are shareholders, their financial liability is limited to the amount of money invested into the business, so if a company collapses, the owners’ private assets are protected
(-) in some cases, the owner will have to give personal guarantees of the company’s debts to those lending to the company, so they will have to pay off the debts if the company can’t
what is limited liability?
when the business has a separate legal identity from its owners
what 4 types of finance is appropriate for unlimited liability businesses?
- retained profit
- crowd funding
- bank overdraft
- grants (lengthy application process and need to qualify)
what 3 types of finance is appropriate for limited liability businesses
- share capital
- venture capitalists
- business angels
