external finance

Question 1

what source of finance is common for small businesses

Answer 1

friends and family

Question 2

pros of family and friends as a source

Answer 2

low or zero interest rates
unlikely to want a stake in the business

Question 3

cons of family and friends as a source

Answer 3

if not paid back in full or on time may lead to strains on relationships

Question 4

what sources of finance do banks provide

Answer 4

loans
mortgages
overdrafts

Question 5

what is usually necessary to show a bank to apply for a source of finance

Answer 5

a business plan

Question 6

what is a mortgage

Answer 6

they usually last around 25 years and can oly be used to buy a specific asset. interest rates can be fixed or variable

Question 7

what is a bank loan

Answer 7

the amount borrowed can be spread over a period to match the needs of the business as well as allowing the business to budget more effectively

Question 8

what is an overdraft

Answer 8

a flexible source of finance mainly used to ease short-term cash flow problems.

Question 9

what business is an overdraft well suited for

Answer 9

one with seasonal sales

Question 10

what are the 2 types of loans

Answer 10

unsecured and secured loans

Question 11

define secured loan

Answer 11

a loan where the lender requires security such as property to provide protection in case the borrower defaults

Question 12

define unsecured loan

Answer 12

where the lender has no protection if the borrower fails to repay the money owed

Question 13

what else might banks offer

Answer 13

advisory services to businesses

Question 14

what is peer to peer lending

Answer 14

involves people lending money to unrelated individuals and so avoiding using a bank.

Question 15

where do transactions occur for P2PL

Answer 15

online and are organised by specialists like zopa, funding circle, lending works and ratesetter

Question 16

what are key features of P2PL

Answer 16

-all loans are unsecured
-the whole financial arrangment is for profit
-all transactions online
-no previous relatioship between lender and borrower needed
-lenders may choose borrowers
-P2P sites usually charge a fee

Question 17

pros of P2PL

Answer 17

better interest rates offered than by a bank
convenient as its quick

Question 18

cons of P2PL

Answer 18

the financial services compensation scheme doesnt cover participants.
for lenders access to cash may not be instant

Question 19

what are business angels

Answer 19

individuals who tyically invest between 10,000 and £100,000+ in exchange for a stake in the business

Question 20

when are most business angel ivestments made

Answer 20

in the start up of a business or early stages of expansion

Question 21

reasons people become business angels

Answer 21

like the idea of risks
tax relief offered by government
investment opportunities for unused incomec

Question 22

cons of business angels

Answer 22

need to share interests and want the firm to go in the same direction
may be pressurisingat

Question 23

what must business directors do for a business angels

Answer 23

present a compelling business proposition concisely and succinctly

Question 24

what is crowd funding

Answer 24

where a large number of individuals invest in a business or project on the internet, avoiding a bank

Question 25

whats a debenture

Answer 25

a loan agreement in writing between a borrower and a lender that is registered at Companies House. It gives the lender security over the borrower’s assets

Question 26

whats a debt factor

Answer 26

where a business sells a debt to someone else and pays a fee for that person to collect it on their behalf