2.1 Flashcards
3 adv and dis of internal finance
Adv-
In control of finance
Lower cost - no fees
Can gain the finance (if available) quickly
Dis-
Limited amounts
Takes away from current business model
Finance may be required after already spent
3 adv and dis of external finance
Adv- larger sums causing more opportunity
Loans paid back over time
Not taking money from owners/business
Dis-
Interest/ dividends
If not successful could lead to high debts
Needs proof of success to obtain
Whats the difference between a source and a methord of finance?
Source- Where a business gets the money from
Method- A way a business is able to obtain finance
2 adv and dis of retained profit
adv- no intrest
safe- low risk as costs and dividens paid for already
Dis- amount not set
takes away money that would be profit for owners
2 adv and dis of selling assets
Adv-
If assets are no longer needed, can be sold to generate cash
Money earned by sale can be used to upgrade assets
Dis-
Might not get full market value of the assets or even be able to sell them at all
May need assets in the future
2 adv 2 dis of using owners capital to raise finance
No intrest+risk
Quick and conveinient
Dis - only relevant for small businesses
Owner may not have enough savings or may need the cash for personal use
2 adv 3 dis of a bank loan as a methord of finance
Adv -
Receive a lump sum of cash
Pay back the payment over time
Dis-
High interest rates
Startups may need to set up collateral
Bank may not grant loan
2 adv 2 dis of using share capital as a method of finance
Adv-
No interest on shares
Obtain finance quickly
Dis -
Lose control of the business
May be taken in a hostile takeover over if another business buys over 50% of shares
1 adv 2 dis of using venture capital as a methord of finance
Business has the opportunity to obtain finance where selling shares and a bank loan is not viable
Dis-
High risk for venture capitalists thus may demand a high interest
Venture capitalists are likely to demand large shareholding and lots of decision making
2 adv 2 dis of using a bank overdraft as a methord of finance
Adv-
Quick access
Allows emergency purchases
Dis -
High interest rats
Only a short term solution
2 adv 2 dis of leasing as a method of finance
Adv
No large upfront payments
Leasing company may be responsible for repairs and maintenance
Dis-
Over time it can be more expensive to obtain assets
Assets are owned by the business
2 adv 2 dis of using trade credit as a source of finance
adv -
access to supplies without immediate payment
no interest
dis -
short term, must be paid off quickly
usually small amounts
