2.1 Raising Finance Flashcards
(27 cards)
What is peer to peer lending
Involves people lending money to unrelated individuals or peers and therefore avoid the use of a bank
What are business angels?
Individuals who typically may invest between £10k-100k+ often in exchange for a stake in a business
Advantages of business angels
- more willing to take risks than banks
- offer guidance + advice
- only for some time, so owners regain shares
Disadvantages of business angels
own a stake in the firm, so are involved in decision making and will get a share of business profits
What is a crowdfunding?
finance provided by a large number of small investors on online platforms
advantage of crowdfunding
- The platform provides free marketing
- A good credit rating is not required
Disadvantages of crowdfunding
- need to provide a persuasive business plan, to convince individuals to invest
- competing with many other projects online
what is retained profits?
the cash thats generated by the business when it trades profitably
what is share capital?
Money invested in a company by the shareholders.
what is a bank loan?
long-term finance, normally for 1-25 years. Bank loans are generally at a lower rate of interest. they don’t provide flexibility.
what is a bank overdraft?
short-term finance, its used by start-ups and small businesses. Bank lets the business “owe money” when the balance goes below zero, in return for high interest. overdraft is flexible.
what is a venture capital?
type of private equity financing that funds startups, and emerging companies that have high growth potential.
other businesses as a source of finance
+ve and -ve
i.e. joint venture and merger
- access finance and resources
- profits and decisions need to be shared
Credit cards as a source of finance?
Each month, entrepreneur pays for business expenses on a credit card. 15 days later the credit card statement is sent in the post, the balance is paid by the business within the credit-free period (30-45 days)
savings as source of finance
invest personal cash in a start-up. its a cheap form of finance thats available. Investing personal savings maximise the control of the business. It shows commitment to outside investors
re-mortgaging as a source of finance?
takes out a 2nd or larger mortgage on private property & invests some money in the business, to get low-cost finance. if the business fails, then property will be lost too
borrowing from friends and family
Friends/ family can provide money either to the entrepreneur or business. This can be quick and cheaper to arrange and interest/ repayment may be more flexible.
appropriate income for limited liability firms
- internal
- investors
retained profit, share capital, debentures
venture capitalists, business angels
What is a business plan?
A document that sets out a business idea showing products, resources needed and how they are going to be marketed and forecasts of costs revenue and cash flow
Content of a business plan designed to raise finance?
- executive summary - an overview of a business, including who you are
- Product
- Market assessment, e.g. Competitors, market size, growth
- Production methods
- Financial forecasts
- Key opportunities and threats
- Investment required
Why is cash flow important?
- Cash flow is unpredictable
- Cash flow problems are the main reason for business failure
- Updated cash flow forecast can address problems
Examples of cash inflows
- Cash sales
- Interest on bank balance
- Sale of fixed assets
- Grants
- Loans from the bank
- Share capital invested
Examples of cash outflows
- Payment to suppliers
- Wages and salaries
- Payments for fixed assets
- Interest on loans and overdrafts
- Dividends paid shareholders
- Repayment of loans
Why produce a cash flow forecast
- Advance warning of cash shortages
- ensures that the business can afford to pay suppliers and employees
- Spot problems with customer payments
- Provides reassurance to investors and lenders for the business is being managed properly
