External sources of finance Flashcards
(13 cards)
EXTERNAL SOURCES
Are sources of money from outside the business, from the owner or from previous business income.
BANK LOAN
Where the business will borrow a sum of money that must be repaid overtime by interest.
BANK LOAN:
ADVANTAGES
- Repayments in instalments
- Makes cash flow easier
- Don’t have to issue shares
BANK LOAN:
DISADVANTAGES
- Have to back up the loan with security e.g assets of the business
- Pay back interest
OVERDRAFT
A pre-arranged amount of money that the business is allowed to use and pay back when it likes.
OVERDRAFT:
ADVANTAGES
- Enable short term funding
- Flexibility to review the funding
- Covers day to day expenses
OVERDRAFT: DISADVANTAGES
- Interest charged when overdrawn, can be ended by the bank at anytime.
GRANTS
An amount of money that is given, to aid in creation of a business. This money DOES NOT have to be paid back
GRANTS:
ADVANTAGES
- Doesn’t have to be paid back
- Helps start up new businesses
- Creates jobs
GRANTS:
DISADVANTAGES
- Based on application
- Not available to all businesses
VENTURE CAPITAL
Sometimes called an investor, it is a business person who invests in start up businesses for a % share of the profits
VENTURE CAPITAL:
ADVANTAGES
- Potential for large sums of money for investment
- Expertise to help the business
- Makes it easier to attract other sources of finance
VENTURE CAPITAL:
DISADVANTAGES
- Lose a percentage of the business
- A long and complex process
- Expert financial projections are likely to be required
- Risk of conflict or perceived interference
