1.3.4 Business Sources of Finance Part 2 Flashcards
(18 cards)
Trade Credit Benefits
-Improve cash-flow position
-Foster stronger relationships
Trade Credit Negatives
-If not paid on time, business can gain a bad reputation and lose future credit arrangements with the supplier
-Difficult for start-ups to negotiate trade credit due to risk of business failure and suppliers not getting paid
Bank Overdraft Benefits
-Flexible
Bank Overdraft Negatives
-Repayable to the bank at any time
-High levels of interest
Personal Savings Benefits
-Cheap and readily available
-Maximises control over the business
-No interest
Personal Savings Negatives
-May be limited and too little for the business
Loans (Friends and Family) Benefits
-Quick and cheap to arrange
-Interest and repayment terms may be more flexible
Loans (Friends and Family) Negatives
-Can cause disagreements as it adds stress to repay family
-May be limited
Loans (Banks) Benefits
-Guaranteed the money for a certain period
-Loans can be matched to the lifetime of equipment or other assets its being used for
-No control is lost
-Bank doesn’t get a share in the business
-Interest may be fixed, making it easier to forecast interest payments and cash-flow
-Repayments in installments
Loans (Banks) Negatives
-Time-consuming
-Security normally has to be given to the bank on some of the assets which the bank will control if the business fails
-Lack of flexibility
-Interest
Venture Capitalist Benefits
-Expertise skills, experience and contacts that can be used for the business
-Access to large amount of funds
Venture Capitalist Negatives
-Usually want a share in the business and of profits
-Lead to slight loss of control
Share Capital Benefits
-Large sums of money can be raised
-Capital doesn’t have to be repaid
-No interest
Share Capital Negatives
-Possible loss of control
-Need to satisfy shareholders expectations of dividends and share price growth
Retained Profit Benefits
-Cheap
-No interest
-Flexible
-Doesn’t dilute or reduce the ownership
Retained Profit Negatives
-If a business is facing difficulties and needs temporary finance, it is ulikely to have any profits to use
-Growth may be slow if profits aren’t high
Crowdfunding Benefits
-Cheap investment when other sources may not be available
-Might attract good publicity
-Business may create web blog or social media to keep investors informed, which might provide ongoing finance
-Investors may have skills or experience to offer
Crowdfunding Negatives
-Investors will need to be offered a return
-Risk that there will be a limit to the amount of money investors are willing to use in this way
-Ownership may be diluted
