external sources Flashcards
external sources
sources of money outside the business from others putting money in
bank loan
where businesses borrow a lump sum of money that MUST be repaid overtime with interest.
bank loan advantages
repayments in instalments
cash flow easier
no issue shares
bank loan disadvantages
back up the loan wi9th security
pay back interest
overdraft `
pre-arranged money that the business is allowed to use and pay back whenever
overdraft advantages
short term funding
flexibility to review funding
covers day to day expenses
overdraft disadvantages
interest charged if overdrawn
ended by bank at anytime
grants
money that is given by European, national or local government to aid creation of business. DOES NOT have to be paid back.
grants advantages
doesn’t have to b e paid back
helps new businesses
creates jobs
grants disadvantages
based on application
not available for all businesses
venture capital
called an investor, business partner who invests in start up businesses for % share of profits.
venture capital advantages
potential large sums of money for investment
expertise help the business
makes it easier to attract other sources of finance
venture capital disadvantages
lose % of business long and complex process expert financial projections required risk of conflict perceived interference
hire purchase
buy an asset and pay it monthly. do not own asset until final payment
hire purchase advantages
cheaper than buying outright
manage cash flow
equipment regularly updated
hire purchase disadvantages
more expensive in long run
trade credit
not immediately paying for stocks. given a certain amount of days to pay
trade credit advantages
no interest to be paid
helps cash flow
trade credit disadvantages
suppliers might not be willing to provide credit
share capital
money paid b y shareholders to become owners of limited company
share capital advantages
no interest payed
or repayments
share capital disadvantages
shareholders receive part of profits
lose control of business
crowdfunding
small amounts of capitals from large number of individuals to finance new business venture. you will give rewards or returns for investments
crowdfunding advantages
fast way to raise finance
no upfront fees
good way to test public reaction
alternate finance if you struggle bank loan or other funding
